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Administrative Conference 
of the United States 




BaHali^ 



ADMINISTRATIVE 

PROCEDURE 

SOURCEBOOK 

Statutes 
and 
Related 
Materials 

> 

2d edition 



Office of the Chairman 
1992 



Administrative Conference of the United States 



The Administrative Conference of the United States was estab- 
lished by statute as on independent agency of the federal 
governnnentin 1964. Its purpose isto promote improvements in the 
efficiency, adequacy, and fairness of procedures by which fed- 
eral agencies conduct regulatory programs, administer grants 
and benefits, and perform related governmental functions. 

To this end , the Conference conducts research and issues reports 
concerning various aspects of the administrative process and, 
when warranted, mokes recommendations to the President, 
Congress, particular departments and agencies, and the judici- 
ary concerning the need for procedural reforms. Implementation 
of Conference recommendations may be accomplished by 
direct action on the port of the affected agencies or through 
legislative changes. 



FEDERAL ADMINISTRATIVE 

PROCEDURE SOURCEBOOK: 

Statutes and Related Materials 

2d edition 



Digitized by the Internet Archive 

in 2010 with funding from 

Public. Resource. Org and Law.Gov 



http://www.archive.org/details/federaladmin1992unse 



FEDERAL 
ADMINISTRATIVE 
PROCEDURE 
SOURCEBOOK 

statutes 
and 
Related 
Materials 

2d edition 



Administrative Conference of the United States 

Office of the Chairman 

1992 



Charles Pou, Jr. 
Project Director 



This volume should be cited as Administrative 
Conference of the U.S., Federal Admini- 
strative Procedure Sourceboolc, 2d edition 
(Office of the Chairman, 1992). 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328 
ISBN 0-16-038042-1 



Chairman's Foreword 

I am pleased to introduce the second edition of the 
Conference's Federal Administrative Procedure Sourcebook. 
The Sourcebook is one of a series of reference volumes that the 
Conference has compiled since 1985. This revision reflects 
dozens of statutory and regulatory changes since the first edition 
was published. 

The laws added to this volume reflect major recent trends 
in our legal system and American society. On the one hand, the 
Program Fraud Civil Remedies Act is intended to deter contractor 
fraud and similar misconduct. This Act reflects (among other 
things) the growing influence of inspectors general, auditors, and 
administrative agency decisions. It also suggests how some 
critical, ongoing government/private sector relationships have 
become subject to ever closer scrutiny. On the other hand, the 
Administrative Dispute Resolution Act and Negotiated Rulemak- 
ing Act— both enacted in 1990 with the support of the Confer- 
ence—seek to improve decisionmaking by placing increased deci- 
sional responsibility in the hands of those members of the public 
likely to be affected by agency decisions. At the same time, these 
new statutes encourage federal agencies to employ simpler, less 
cosdy and time-consuming processes in resolving administrative 
disputes. Agencies' use of mediation and arbitration is part of a 
current in courts and elsewhere to channel a variety of conflicts into 
less adversarial processes. The Administrative Conference contin- 
ues to work with agencies of the federal government to change them 
into exemplars for the rest of society in handling conflicts more 
constructively. Recent history, both domestic and international, 
signifies the importance of this trend for our nation. 

Developments since the 1985 Sourcebook emphasize the 
continuing merit of the reflections of James Madison in The 
Federalist, No. 51, as quoted in the first edition by former Chair- 
man Loren A. Smith. The tension inherent in simultaneously 
controlling the governed and obHging the government to control 
itself endures. The fact that there are more rules, more laws, 
more lawyers, and more contention than ever before, does not 
mitigate Judge Smith's admonition that it is of fundamental 



importance for us all to understand the laws by which our soci- 
ety functions, their purposes, and their effects upon both gov- 
ernment and those governed. In the Conference's Sourcebook 
we have tried to provide access to and explanations of many of 
the laws applicable to federal agency officials. 

The Sourcebook is intended for several audiences. Our 
primary audience, as per the Conference's statutory mandate, 
comprises agency administrators, attomeys, and other federal 
employees. Thus, federal administrators wishing a concise de- 
scription of a particular statute's operation and effect may refer to 
the Overview section. Agency officials and their attorneys may 
benefit at other times from a desk book compiling the major laws 
and related guidance affecting their operations (apart from autho- 
rizing and budgetary statutes, of course). In addition, we hope that 
reviewing judges, scholars, congressional staffs, private attomeys, 
and others performing research in administrative law or public 
administration will find convenient starting points in the 
Sourcebook's Overview, Legislative History, and Bibliography 
sections. 

I hope you will find our offering a helpful one. 



Robert S. Ross, Jr. 
Acting Chairman 
August 1992 



vi 



Table of Contents 



Chairman's Foreword v 

Table of Contents vii 

Introduction xv 

Acknowledgments xvii 

1. Administrative Procedure Act 1 

Citations 1 

Overview 1 

Legislative History 8 

Source Note 9 

Bibliography 10 

Agency Procedural Rules 13 

Appendix 17 

1. Act 17 

2. Executive Order 12,291 33 

3. Executive Order 12,498 41 

4. President's Memorandum for Heads of 

Executive Departments and Agencies 45 

5. Office of Management and Budget, Regulatory 

Impact Analysis Guidance, Regulatory Program 

of the United States Government-1990 47 

6. Office of Management and Budget, Memorandum 

for the Heads of Departments and Agencies, 

Presidential Review of Agency Rulemaking 61 

7. U.S. Department of JusticQ, Attorney General's 

Manual on the Administrative Procedure Act 67 

2. Judicial Review of Agency Action 207 

Citations 207 

Overview 207 

Bibliography 213 

Appendix 215 

3. Administrative Dispute Resolution Act ^^^ 

Citations ^^^ 

Lead Agency ^^^ 

Overview ■^■^^ 

Legislative History ^35 

Source Note ^^^ 

Bibliography ^37 

Appendix '^^^ 

1. Act 243 



Vii 



2. Administrative Procedure Technical 



6. 



Amendments Act of 1991 


257 


3. Administrative Conference of the 




United States, Roster rules 


261 


Agency Practice Act 


265 


Citations 


265 


Overview 


265 


Legislative History 


266 


Source Note 


266 


Bibliography 


267 


Agency Regulations 


267 


Appendix 


271 


Claims and Debt Collection Acts 


273 


Citations 


273 


Lead Agencies 


273 


Overview 


273 


Legislative History 


277 


Source Note 


277 


Bibliography 


278 


Agency Regulations 


280 


Appendix 


283 


1. Act 


283 


2. U.S. General Accounting Office/ 




U.S. Department of Justice, Federal Claims 




Collection Standards 


305 


3. Office of Personnel Management, Pay 




Administration Standards 


323 


Contract Disputes Act 


329 


Citations 


329 


Lead Agency 


329 


Overview 


329 


Legislative History 


333 


Source Note 


334 


Bibliography 


335 


Agency Board of Contract Appeals Regulations 


340 


Appendix 


341 


l.Act 


341 



2. Office of Federal Procurement Policy, 

Proposed Uniform Rules of Procedure for 

Boards of Contract Appeals 357 

3. Office of Federal Procurement Policy, Interim 

Final Uniform Rules of Procedure for 

Boards of Contract Appeals and Related 

Regulations 371 



viii 



4. Office of Federal Procurement Policy, Final 

Uniform Rules of Procedure for Boards of 

Contract Appeals Under the Contract Disputes Act 383 

5. Office of Federal Procurement Policy, Regulatory 

Guidance on Pub. L. 95-563, the Contract 

Disputes Act of 1978, OFPP Policy Letter 80-3 389 

7. Equal Access to Justice Act 395 

Citations 395 

Lead Agencies 395 

Overview 395 

Legislative History 400 

Source Note 402 

Bibliography 403 

Agency Regulations 406 

Agency Notices of Proposed Rulemaking 407 

Appendix 409 

1. Act 409 

2. Administrative Conference of the U.S., 

Model Rules for Implementation of the 

Equal Access to Justice Act 419 

8. Ethics in Government Act and Related Statutes 427 

Citations 427 

Lead Agencies 427 

Overview 428 

Legislative History 441 

Bibliography 445 

Appendix 453 

1. Title 5, U.S. Code, Appendix 101-112, Financial 

Disclosure Requirements of Federal Personnel 453 

2. Title 18, U.S. Code, Chapter 11, Bribery, Graft, 

and Conflicts of Interest 477 

3. Executive Order 12,731, Principles of Ethical 

Conduct for Government Officers and 

Employees 501 

4. Synopsis of Standards of Ethical Conduct for 

Employees of the Executive Branch, Prepared and 

Distributed by the U.S. Office of Government 

Ethics to Accompany Final Rule Published on 

August 7, 1992 505 

5. U.S. Office of Government Ethics, Final Rule, 

Standards of Ethical Conduct for Employees 

of the Executive Branch 517 

9. Federal Advisory Committee Act 571 

Citations 571 



ix 



Lead Agency 571 

Overview 571 

Legislative History 573 

Source Note 575 

Bibliography 576 

Appendix 579 

l.Act 579 

2. General Services Administration, 
Federal Advisory Committee 

Management Regulations 589 

10. Federal Tort Claims Act 599 

Citations 599 

Lead Agency 599 

Overview 599 

Legislative History 603 

Source Note 603 

Bibliography 604 

Agency Regulations 607 

Appendix 609 

1. Act 609 

2. Department of Justice, Administrative Claims 

under Federal Tort Claims Act regulations 623 

3. Department of Justice, Alternative Dispute 

Resolution under the Federal Tort Claims Act 629 

11. 



12. 



Freedom of Information Act 


633 


Citations 


633 


Lead Agency 


633 


Overview 


633 


Legislative History 


644 


Source Note 


646 


Bibliography 


647 


Agency Regulations 


649 


Appendix 


653 


l.Act 


653 


2. Executive Order 12,600, Predisclosure 




Notification Procedures for Confidential 




Commercial Information 


663 


Government in the Sunshine Act 


667 


Citations 


667 


Overview 


667 


Legislative History 


670 


Significant Case Law 


672 


Source Note 


673 


Bibliography 


673 


Appendix 


675 



13. National Environmental Policy Act 681 

Citations 681 

Lead Agency 681 

Overview 681 

Legislative History 683 

Source Note 684 

Bibliography 685 

Agency Regulations 691 

Appendix 693 

1. Act 693 

2. Council on Environmental Quality Regulations 70 1 

3. Council on Environmental Quality, Memoran- 

dum to Agencies Containing Answers 

to 40 Most Asked Questions on NEPA 

Regulations 731 

4. Council on Environmental Quality, Memoran- 

dum for General Counsels, NEPA Liaisons and 

Participants in Scoping 757 

5. Council on Environmental Quality, Guidance 

Regarding NEPA Regulations 779 

14. 



15. 



Negotiated Rulemaking Act 


791 


Citations 


791 


Lead Agency 


791 


Overview 


791 


Legislative History 


794 


Significant Case Law 


795 


Source Note 


796 


Bibliography 


796 


Appendix 


799 


1. Act 


799 


2. Administrative Conference of the U.S., 




Negotiated Rulemaking Sourcebook, 




Table of Contents 


809 


Paperwork Reduction Act 


819 


Citations 


819 


Lead Agency 


819 


Overview 


819 


Legislative History 


825 


Bibliography 


826 


Agency Regulations 


828 


Appendix 


829 


1. Act 


829 



2. Office of Management and Budget, 

Controlling Paperwork Burdens on the Public 847 



xi 



16. Privacy Act 863 

Citations 863 

Lead Agency 863 

Overview 863 

Oversight 872 

Legislative History 872 

Source Note 873 

Bibliography 874 

Appendix 877 

1. Act 877 

2. Office of Management and Budget, 

Implementation of the Privacy Act of 1974, 

Supplementary Guidance 893 

3. Office of Management and Budget, 

Revised Supplemental Guidance for 

Conducting Matching Programs 897 

4. Office of Management and Budget, Management 

of Federal Information Resources, Final 

Publication of 0MB Circular A- 1 30 903 

5. Office of Management and Budget, Final 

Guidance Interpreting the Provisions of Pub. 

Law No. 100-503, the Computer Matching and 

Privacy Protection Act of 1988 947 

17. Program Fraud Civil Remedies Act 981 

Citations 981 

Lead Agency 981 

Overview 981 

Legislative History 984 

Source Note 984 

Bibliography 984 

Agency Regulations 986 

Appendix 987 

l.Act 987 
2. Department of Health and Human Services, 

Program Fraud Civil Remedies 1005 

18. Regulatory Flexibility Act 1023 
Citations 1023 
Lead Agency 1023 
Overview 1023 
Legislative History 1025 
Source Note 1026 
Bibliography 1027 
Appendix 1029 



xii 



"What a charming life that was, that dear old life in the Navy 
when I kept grocery on a gunboat. I knew all the regulations and 
the rest of them didn't. I had all my rights and most of theirs." 

Thomas B. Reed (R. Me.) 

Speaker of the House, 1890-92, 1895-99 



Introduction 

The second edition of the Federal Administrative Proce- 
dure Sourcebook has been compiled by the Office of the Chairman 
of the Administrative Conference as a basic introduction and 
reference book on the major federal procedural statutes. The text 
of each statute is given, along with explanatory material, legislative 
history, related documents, sources of additional relevant materi- 
als, and a bibliography. 

The Sourcebook is designed to be useful for both lawyers 
and nonlawyers at federal agencies and for any person who needs 
to know what any of the key federal procedural statutes is about. 
While this volume is designed to be a convenient source of statutory 
and other materials, we emphasize that the commentary is not 
intended to be a substitute for legal research or for legal counsel. 
Readers with specific legal questions may have to consult the 
statute directly, as well as judicial opinions, legislative history, or 
where appropriate, the lead agency or their own attorney. 

Though the Sourcebook' s organization is largely self- 
evident, a few preliminary comments are necessary. These notes 
follow the format of each chapter: 

Statutory Citations. This section includes U.S. Code, 
Public Law and Statutes at Large citations, including all significant 
amendments. 

Lead Agency. This designation is a loose one, because a 
"lead" agency's role may vary from informal consulting and data 
collection to issuance of binding regulations, from occasional 
technical guidance to regular oversight of specific activities. The 
Overview section typically elaborates on the lead agency's role. 

Overview. This section summarizes the content of the 
statute and its applicability. Any observations or conclusions 
represent only the judgment of attorneys in the Office of the 
Chairman of the Administrative Conference. 

Bibliography. Lists presented are not intended to be 
exhaustive, though we have tried to include the major works and 
some useful references in the Bibliography or accompanying 
Source Note. Suggestions for additional listing are welcome. 

Citations to Administrative Conference Materials. All 
Conference recommendations, the reports relating to them, and 



XV 



other materials are published in iht Reports and Recommendations 

of the Administrative Conference series (cited as ACUS 

intheBibliography(e.g.,1980ACUS313or2ACUS119). 

This series appears as four multi-year compilations from 1968-77, 
and annually thereafter. Conference recommendations are com- 
piled annually in volume one of the Code of Federal Regulations. 
Finally, a complete bibliography of Administrative Conference 
reports appears periodically in the Administrative Law Review (see 
Chapter 1, Bibliography). 

Statutory Texts. The texts are taken from the United States 
Code and reflect all amendments through August 1992. Notes, 
cross-references, and the like have generally not been included 
except where particularly useful. 

Future Supplements or Updates. A postcard is attached 
to the back cover for those interested in receiving future 
supplements or updates to the Sourcebook, 



xvi 



Acknowledgments 

As with the first edition, virtually the entire Office of the 
Chairman has been involved in this project. The primary work 
came from the attorneys who contributed new or revised and 
expanded chapters to the second edition of the Sourcebook. These 
are Michael W. Bowers (Ethics in Government Act and FOIA), 
Gary J. Edles (Judicial Review), Mary Candace Fowler (EAJA and 
Regulatory Flexibility Act), Kevin L. Jessar (Claims and Debt 
Collection Acts), Jeffrey S. Lubbers (NEPA), Nancy G. Miller 
(Paperwork Reduction and Program Fraud Civil Remedies Acts), 
Brian C. Murphy (FACA and Sunshine Act), David M. Pritzker 
(Agency Practice and Negotiated Rulemaking Acts), and William 
J. Olmstead (Privacy Act). Mr. Jessar rendered especially invalu- 
able assistance to the book's publication. Eva Loser's attention to 
detail in the fmal stages added much to the publication. Sharon 
Anderson, Susan Mack, Demetra Matsis, and Karyn Zaayenga 
typed numerous drafts and offered other varieties of assistance too 
numerous to mention. Charlene Young's photocopying and Clarice 
Brown ' s many contributions helped make the project run smoothly. 

In addition, almost two dozen experts from lead agencies, 
academia, and elsewhere reviewed draft chapters. They provided 
many helpful comments, and called our attention to numerous 
inaccuracies. Undoubtedly some errors remain, for which the staff 
assumes responsibiUty. Finally, thanks to the House of Represen- 
tatives Office of the Law Revision Counsel for their help in 
providing computer disks containing U.S. Code sections. 

The Office of the Chairman hopes these combined efforts 
will promote greater understanding of the administrative process 
by those who work in, or deal with, federal agencies. 



Charles Pou, Jr. 
Project Director 

Renee Barnow 
Publications Editor 



XVII 



Administrative Prcx:edure Act 

Administrative 

Procedure 

Act 



Citations: 

5 U.S.C. §§551-559, 701-706, 1305, 3105, 3344, 5372, 7521; 
originally enacted June 11, 1946 by Pub. L. No. 404, 60 Stat. 237, 
Cii. 324, §§1-12. 

The Administrative Procedure Act (APA), as originally enacted, 
was repealed by Pub. L. No. 89-554, 80 Stat. 381 (September 6, 
1966), as part of the general revision of title 5 of the United States 
Code. Its provisions were incorporated into the seaions of title 5 
listed above. Although the original section numbers are used 
sometimes, in this volume all references to the Act are to sections 
of title 5. 

Section 552 has been revised significandy and is commonly 
known as the "Freedom of Information Act." Sections 552, 552a 
(the "Privacy Act"), 552b (the "Government in the Sunshine Act"), 
and sections 701-706 pertaining to judicial review are discuss^ 
and set forth separately. Two significant amendments to the 
rulemaking and adjudication procedures of the APA were two laws 
enacted in .1990-the Administrative Dispute Resolution Act and the 
Negotiated Rulemaking Act; they too are discussed separately, 
though briefly summarized herein. 



Overview: 

Attempts to regularize federal administrative procedures go back 
at least to the 1930s. Early in 1939, at the suggestion of the 
attorney general. President Roosevelt asked the attorney general to 
appoint a distinguished committee to study existing administrative 
procedures and to formulate reconunendations. The Attorney 
General's Committee on Administrative Procedure, chaired by 
Dean Acheson, produced a series of monographs on agency 
functions, and submitted its Final Report to the President and the 



Administrative Procedure Act 



Congress in 1941. These materials, plus extensive hearings held 
before a subcommittee of the Senate Committee on the Judiciary in 
1941, are primary historical sources for the Administrative 
Procedure Act. 

The Administrative Procedure Act was signed into law by 
President Truman on June 11, 1946. In the months that followed, 
the Department of Justice compiled a manual of advice and 
interpretation of its various provisions. The Attorney General's 
Manual on the Administrative Procedure Act, published in 1947 
(and reprinted in the Appendix), remains the principal guide to the 
structure and intent of die APA. The Manual (page 9) states the 
purposes of the Act as follows: 

(1) To require agencies to keep the public currendy informed of 
their organization, procedures and rules. 

(2) To provide for public participation in the rulemaking 
process. 

(3) To prescribe uniform standards for the conduct of formal 
rulemaking and adjudicatory proceedings (i.e., proceedings 
required by statute to be made on the record after opportunity for 
an agency hearing). 

(4) To restate the law of judicial review. 

The Act imposes upon agencies certain procedural requirements 
for two modes of agency decisionmaking: rulemaking and 
adjudication. In general, the term "agency" refers to any authority 
of the government of the United States, whether or not it is within, 
or subject to review by, another agency~but excluding the 
Congress, the courts, and the governments of territories, 
possessions, or the District of Columbia. ^ Definitions of other 
terms may be found in section 551. 

Structure of the Administrative Procedure Act. The 
Administrative Procedure Act has two major subdivisions: sections 
551 through 559, dealing in general with agency procedures; and 
sections 701 through 706, dealing in general widi judicial review. 
In addition, several sections dealing with administrative law judges 
(§§1305, 3105, 3344, 5372, and 7521) are scattered through title 5 
of the United States Code. The sections pertaining to judicial 
review are discussed in Chapter 2 of this volume. As noted, 
sections 552, 552a, and 552b are also discussed in separate 
chapters, as are the new sections added by the Administrative 
Dispute Resolution and Negotiated Rulemaking Acts. 



^See 5 U.S.C. §§551(1), 701(b)(1) for other specific exemptions. 



Adnhnistrattve Procedure Act 



The structure of the APA is shaped around the distinction 
between rulemaking and adjudication, with different sets of 
procedural requirements prescribed for each. Rulemaking is 
agency action thai regulates the future conduct of persons, through 
formulation and issuance of an agency statement designed to 
implement, interpret, or prescribe law or policy. It is essentially 
legislative in nature because of its future general applicability and 
its concern for policy considerations. By contrast, adjudication is 
concerned with determination of past and present rights and 
liabilities. The result of an adjudicative proceeding is the issuance 
of an "order." (Licensing decisions are considered to be 
adjudication.) 

The line separating these two modes of agency action is not 
always a clear one, because agencies engage in a great variety of 
actions. Most agencies use rulemaking to formulate future policy, 
though there is no bar to announcing policy statements in 
adjudicatory orders. Agencies normally use a combination of 
rulemaking and adjudication to effectuate their programs. The 
APA definition of a "rule," somewhat confusingly, speaks of an 
"agency statement of general or particular applicability and future 
effect. ..." The words "or particular" were apparently included 
in the definition to encompass such actions as the setting of rates or 
the approval of corporate reorganizations, to be carried out under 
the relatively flexible procedures governing rulemaking. ^ 

Beyond the distinction between rulemaking and adjudication, the 
APA subdivides each of these categories of agency action into 
formal and informal proceedings. Whether a particular rulemaking 
or adjudication proceeding is considered to be "formal" depends on 
whether the proceeding is required by statute to be "on the record 
after opportunity for an agency hearing" (5 U.S.C. §§553(c), 
554(a)). The Act prescribes elaborate procedures for both formal 
rulemaking and formal adjudication, and relatively minimal 
procedures for informal rulemaking. Virtually no procedures are 
prescribed by the APA for the remaining category of informal 
adjudication, which is by far the most prevalent form of 
governmental action.^ 



n 



2 
For discussion of the inclusion of "or particular" in the definition, see K. Davis, 2 

Administrative Law Treatise §7:3 (2d ed. 1978); Morgan, Toward a Revised Strategy for 

RatemaJdng, 78 U. Ul. L.F. 21, 50 n.l43 (1978). 

-•See P. Verkuil, A Study of Informal Adjudication Procedures, 43 U. Chi. L. Rev. 739 

(1976), for a discussion of informal adjudication. 



Administrative Procedure Act 



Rulemaking. Section 553 sets forth the basic requirements for 
rulemaking: notice of proposed rulemaking in the Federal Register, 
followed by an opportunity for some level of participation by 
interested persons, and finally publication of the rule, in most 
instances at least 30 days before it becomes effective. For a 
detailed discussion of rulemaking procedures, see A Guide to 
Federal Agency Rulemaking, published by the Administrative 
Conference (2d ed. 1991). 

Excluded from the coverage of the Act are rulemaking involving 
military or foreign affairs functions and matters relating to agency 
management or personnel, public property, loans, grants, benefits, 
or contracts. These exceptions to the Act's general policy of 
providing an opportunity for public participation in rulemaking, to 
foster the fair and informed exercise of agency authority, are 
"narrowly construed and only reluctantly countenanced."^ They 
are neither mandatory nor intended to discourage agencies from 
using public participation procedures. On the contrary, when 
Congress enacted the APA, it encouraged agencies to use the 
notice-and-comment procedure in some excepted cases, and many 
agencies routinely do so in making certain kinds of exempted rules. 
The Conference has encouraged this trend, and has called on 
Congress to eliminate or narrow several of these exemptions.^ 
"Regulatory reform" legislative proposals considered over the years 
have contained provisions to alter or eliminate several of these 
exemptions. 

Most rulemaking proceedings involve informal rulemaking, 
where all that the APA requires for public participation is an 
opportunity to submit written data, views, or arguments; oral 
presentations may also be permitted. The published rule must 
incorporate a concise general statement of its basis and purpose. 
Despite the brevity of these requirements, it is important to note 
that Congress has routinely, through other statutes, added 
procedural requirements that affect various agency programs. 
These additional statutory requirements may apply to specific 
agencies or programs, or may be government-wide (such as the 
Regulatory Flexibility Act; see Chapter 18). Recent presidents 
have also imposed additional requirements for rulemaking. (See, 



^American Fedn of Govt Employees, AFL-CIO v. Block, 655 F.2d 1153, 1156 (D.C. 
Cir. 1981). 

^See Conference Recommendations 69-8, 73-5, 79-2, and 82-2, at 1 CFR Part 305 
(1990). See generally, the discussion in Administrative Conference of the U.S., A Guide to 
Federal Agency Rulemaking (2d ed. 1991). 



Administrative Procedure Act 



e.g., Executive Orders 12,291 and 12,498, which are reprinted in 
the Appendix.) Though courts have sometimes sought to add 
procedural requirements, the Supreme Court's decision in Vermont 
Yankee Nuclear Power Corp. v. Natural Resources Defense 
Council, Inc., 435 U.S. 519 (1978), has, to a great extent, limited 
this kind of judicial activity.^ In Vermont Yankee, the Supreme 
Court held that where rulemaking is governed by the (informal) 
requirements of section 553, as in the case of the Nuclear 
Regulatory Conmiission's regulation of nuclear power plants, the 
courts may not require additional procedures. 

The APA also provides for formal rulemaking—a procedure 
employed when rules are required by statute to be made on the 
record after an opportunity for an agency hearing. Essentially, this 
procedure requires that the agency issue its rule after the kind of 
trial-type hearing procedures (§§556, 557) normally reserved for 
adjudicatory orders (discussed below). The Supreme Court, in 
United States v. Florida East Coast Railway Co., 410 U.S. 224 
(1973), held that such a procedure was required only where the 
statute involved specifically requires an "on the record" hearing. 
Because few statutes do so, formal rulemaking is used 
infrequently. "^ However, numerous agency statutes (often called 
"hybrid rulemaking" statutes) do require some specific procedures 
beyond the basic notice-and-conmient elements of informal 
rulemaking. 

Negotiated Rulemaking. The Negotiated Rulemaking Act of 
1990, discussed in greater detail in Chapter 14, establishes a 
statutory framework for the conduct of negotiated rulemaking, a 
procedure developed in large part through the Conference's 
research. A number of agencies have successftilly completed 
negotiated rules in the past several years and the Act's provisions 
reflect that experience. As with other "alternative means of dispute 
resolution" (ADR),^ negotiated rulemaking provides a means of 
using consensual techniques to produce better, more acceptable 
results, reducing the likelihood of protracted litigation. 

The Negotiated Rulemaking Act clearly establishes regulatory 
agencies' authority to use such consensual techniques as negotiated 

"For a contrary view, see K. Davis, Administrative Law Treatise, §§6:37-6:37-3 (1982 
Supp.). 

See, e.g., 21 U.S.C. §371(e)(3) (issuance of standards under the Federal Food, Drug, 
and Cosmetic Act). In U.S. v. Florida East Coast Railway Co., 410 U.S. 224 (1973), a 
statutory requirement of a decision "after hearing" was held insufficient to make sections 
556 and 557 applicable (setting of rates under the Interstate Commerce Act). 

o 

See discussion of the Administrative Dispute Resolution Act in Chapter 3 . 




B 



Administrative Procedure Act 



rulemaking without limiting agency innovation. The Act identifies 
criteria for the discretionary determination by agency heads of 
whether and when to use negotiated rulemaking. It also sets forth 
basic requirements for public notice and the conduct of meetings 
under the Federal Advisory Conunittee Act. 

Adjudication. Sections 554, 556, and 557 apply to formed 
adjudication (i.e., to cases for which an adjudicatory proceeding is 
required by statute to be determined on the record after opportunity 
for an agency hearing).^ These sections apply, for example, to 
proceedings by certain agencies seeking to impose civil money 
penalties as part of a regulatory enforcement program. ^^ 

Section 554(a) specifically exempts six types of proceedings 
from the requirements of these sections: matters subject to a 
subsequent de novo trial in court; certain personnel matters other 
than for administrative law judges; decisions based solely on 
inspections, tests, or elections; military or foreign affairs ftinctions; 
cases where an agency acts as agent for a court; and certification of 
worker representatives. Section 554(b) specifies notice 
requirements. Section 554(c) provides for an opportunity for 
informal settlements where practicable. Section 554(d) forbids 
presiding officers from engaging in ex parte (off-the-record) 
consultations on facts at issue in the case. The subsection also 
addresses "separation of ftinctions," by restricting agency 
employees engaged in investigation or prosecution of a case from 
supervising the presiding officer or participating or advising in the 
decision in that or a factually related case (with certain exceptions). 
Section 554(e) authorizes agencies, in their discretion, to issue 
declaratory orders that would terminate a controversy or remove 
uncertainty with respect to matters required by statute to be 
determined on the record after opportunity for a hearing. 

Sections 556 and 557 prescribe the specific procedures to be 
used in formal adjudication. ^^ In brief, a trial-type hearing must be 
held, conducted either by some or all of the members of the agency 
or by an administrative law judge (appointed under 5 U.S.C. 
§3105). An administrative law judge (AU) is normally the 
presiding officer in formal adjudication. The APA (§556(c)) spells 

^See Chapter 7 for a discussion of the Equal Access to Justice Act, which allows certain 
parties who prevail over the government in formal adjudicatory proceedings (other than 
licensing and ratemaking) to recover attorneys' fees and expenses. 

^^See, e.g., 12 U.S.C. §§504, 505 (banking); 42 U.S.C. §1320a-7a (Medicare fraud); 
16 U.S.C. §1858 (fishery conservation). 

^^Note that sections 554, 556, and 557 contain some special, more flexible, procedures 
for cases involving initial licensing and rulemaking. 



Administrative Procedure Act 



out the powers and duties of ALJs (formerly called "hearing 
examiners"). It also provides for the independence of ALJs by 
protecting their tenure (5 U.S.C. §7521) and pay (5 U.S.C. 
§5372), and prohibiting inconsistent duties (5 U.S.C. §3105). In 
addition, under 5 U.S.C. §1305, the Office of Personnel 
Management has prescribed a special selection procedure for 
appointment of AUs. Currently, there are more than 1100 ALJs 
in the federal government. 

Section 556 also covers disqualification of presiding officers, 
burden of proof, and parties' rights to cross examination. It 
provides that the transcript of testimony and exhibits, together with 
all documents filed in the proceeding, constitutes the exclusive 
record for decision. 

Section 557 provides that when, as is usually the case, a hearing 
is not conducted by the agency itself, the presiding officer 
(normally an ALF) must issue an initial decision-unless the agency 
requires the entire record be certified to the agency for decision. 
An initial decision automatically becomes the agency's decision 
unless appealed or reviewed on motion of the agency. Section 557 
provides, in general, an opportunity for parties to submit for 
consideration their own proposed findings and conclusions, or 
exceptions to decisions. The record must show the ruling on each 
finding, conclusion, or exception presented. 

Section 557(d) was added to the APA by the Government in the 
Sunshine Act in 1976 (see Chapter 12) to prohibit ex pane 
communications relevant to the merits of a pending formal agency 
proceeding. However, where ex parte communications do take 
place, their content must be placed on the public record, and the 
presiding officer may require the party to show cause why a 
decision should not be made adversely affecting the party's 
interest. ^^ Most agencies have adopted procedures applicable to 
hearings relative to agency programs. (A list of citations appears 
at the end of the chapter.) Manual for Administrative Law Judges 
(rev. ed. 1982), contains a detailed discussion of procedures for the 
conduct of hearings and a collection of model forms. 

Alternative Means of Dispute Resolution. The Administrative 
Dispute Resolution Act specifically provides agencies the authority 
to employ mediation, arbitration, and other consensual methods of 

^While Ihe APA does not forbid ex pane contacts in informal rulemaking, the 
Conference has recommended agency practices for making the public aware of most of 
those that do occur. See Conference Recommendations 77-3 and 80-6, at 1 CFR Part 305 
(1992); Administrative Conference of the U.S., A Guide to Federal Agency Rulemaking (2d 
ed. 1991). 




Administrative Procedure Act 



dispute resolution in resolving cases under the APA and in other 
kinds of agency disputes. The legislation specifically establishes a 
federal policy encouraging ADR in place of more costly, time 
consuming adjudication. While no agency is forced to use ADR 
techniques, the legislation requires each agency head to undertake a 
review of typical agency litigation and administrative disputes to 
assess where ADR techniques will be useful. The Act is discussed 
in greater detail in Chapter 3. 

Miscellaneous Provisions. Section 555 states various 
procedural rights of private parties, which may be incidental to 
rulemaking, adjudication, or the exercise of any other agency 
authority. Section 555(b) addresses appearances in agency 
proceedings by parties, counsel, and other interested persons. 
Section 555(c) provides that a person compelled to submit data or 
evidence is entitled to a copy or transcript, except that in nonpublic 
investigations this may be limited to a right to inspect the official 
transcript. Additional provisions of section 555 relate to subpoenas 
and to the requirement of prompt notice of denials of applications, 
petitions, or other requests made to agencies. 

Section 558 is a rarely invoked section of the APA. Section 
558(b) makes clear the requirement that agency rules, orders, and 
sanctions be within the jurisdiction delegated to the agency and 
otherwise authorized by law. Section 558(c) contains some special 
notice provisions and other procedural requirements for handling 
applications, suspensions, revocations, or license renewals. 



Legislative History: i^ 

The legislative history of the Administrative Procedure Act 
begins with the Final Report of the Attorney General's Conmiittee 
on Administrative Procedure in 1941. This report led to the 
introduction in Congress of the so-called majority and minority 
bills, respectively designated as S. 675 and S. 674, 77th Cong., 1st 
Sess. These bills, together with S. 918, formed the basis for 
extensive hearings held in 1941 before a subconmiittee of the 
Senate Committee on the Judiciary. In 1945, the House Committee 
on the Judiciary held brief hearings on various administrative 
procedure bills, of which H.R. 1203, 79th Cong., 1st Sess., was 



^^The summary of legislative history is taken from the Attorney General's Manual, 
p. 8. 



Administrative Procedure Act 



the precursor of the Act as passed. Also in June 1945, the Senate 
Committee on the Judiciary issued a comparative print, with 
comments, which is an essential part of the legislative history. The 
committee reports on the Act are Sen. Rep. No. 752, 79th Cong., 
1st Sess. and H.R. Rep. No. 1980, 79th Cong., 2d Sess. In 
October 1945, the attorney general, at the request of the Senate 
Committee on the Judiciary, submitted a letter, with memorandum 
attached, setting forth the understanding of the Department of 
Justice as to the purpose and meaning of the various provisions of 
the bill (S. 7). TTiis letter and memorandum constitute Appendix B 
of the Senate Committee Report and also appear as an appendix in 
the Attorney General's Manual. 



Source Note: 

The Senate and House debates plus the documents mentioned in 
the preceding paragraph, other than the Final Report of the 
Attorney General's Committee, are compiled in S. Doc. No. 248, 
79th Cong., 2d Sess. (1946), entitled Administrative Procedure 
Act-Legislative History 1944-46. The Final Report was published 
as S. Doc. No. 8, 77th Cong., 1st Sess. (1941). The Attorney 
General's Manual on the Administrative Procedure Act (1947) is a 
contemporaneous interpretive guide to the original language of the 
Act (see Appendix). 

Individual agencies have adopted, within the framework of the 
APA, procedural rules for the conduct of rulemaking and 
adjudication. A list of citations to these rules appears below. 

The Conference's comprehensive Guide to Federal Agency 
Rulemaking (2d ed. 1991) discusses the entire rulemaking process. 
The Guide contains an extensive bibliography. The Conference has 
also published a Manual for Administrative Law Judges (rev. ed. 
1982). The Manual, now under revision, is a handbook of practice 
in the conduct of hearings. (These volumes are available ft-om the 
Government Printing Office.) Persons interested in negotiated 
rulemaking or ADR in APA adjudication should consult the 
separate ACUS Sourcebooks on these subjects and the other 
materials listed in the Bibliography sections of Chapters 3 and 14. 
The Conference's Directory of Administrative Hearing Facilities 
(1984) lists courtrooms and other locations in each state where 
agency hearings may be held. (Single copies of the Directory are 
available from the Conference.) 



10 Administrative Procedure Act 



The Conference has sponsored numerous studies of rulemaking 
and adjudication procedures, and has recommended various 
improvements in agency practice. A complete list of its 
reconmiendations appears in volume 1 of the Code of Federal 
Regulations; a bibliography of publications by and reports to the 
Conference appeared in the Administrative Law Review (1987) (see 
Bibliography). 



Bibliography: 



I. Legislative History 

1. Administrative Procedure Aa-Legislative History 1944-46, 
S. Doc. No. 248, 79th Cong., 2d Sess. (1946). 

2. Administrative Procedure in Government Agencies, S. Doc. 
No. 8, 77th Cong., 1st Sess. (1941) (Final Report of the Attorney 
General's Committee on Administrative Procedure). 

3. House of Representatives Conmiittee on the Judiciary, Report 
on S.7, H.R. Rep. No. 1980, 79th Cong., 2d Sess. (1946), 
reprinted in S. Doc. No. 248 (item 1, above) and in Pike and 
Fischer Administrative Law (2d), Desk Book Stat. - 51. 

4. Senate Committee on the Judiciary, Report on S.7, Rep. No. 
752, 79th Cong., 1st Sess. (1945), reprinted in S. Doc. No. 248 
(item 1, above) and in Pike and Fischer Administrative Law (2d), 
Desk Book, Stat.-ll. 

n. Other Government Documents 

1. Administrative Conference of the U.S., A Guide to Federal 
Agency Rulemaking (2d ed. 1991). 

2. Administrative Conference of the U.S., Directory of 
Administrative Hearing Facilities (1984). 

3. Administrative Conference of the U.S., various 
recommendations and statements, 1 CFR Parts 305, 310: 

68-1 Adequate Hearing Facilities 

68-5 Representation of the Poor in Agency Rulemaking 

of Direct Consequence to Them 
68-6 Delegation of Final Decisional Authority Subject to 

Discretionary Review by the Agency 
69-8 Elimination of Certain Exemptions from the APA 

Rulemaking Requirements 



Administrative Procedure Act 1 1 



70-3 Summary Decision in Agency Adjudication 

70-4 Discovery in Agency Adjudication 

71-1 Interlocutory Appeal Procedures 

71-3 Articulation of Agency Policies 

71-6 Public Participation in Administrative Hearings 

72-1 Broadcast of Agency Proceedings 

72-5 Procedures for the Adoption of Rules of General 

Applicability 
73-5 Elimination of the "Military or Foreign Affairs 

Function" Exemption from APA Rulemaking 

Requirements 
73-6 Procedures for Resolution of Environmental Issues 

in Licensing Proceedings 
74-1 Subpoena Power in Formal Rulemaking and 

Formal Adjudication 
76-2 Strengthening the Informational and Notice-Giving 

Functions of the "Federal Register" 
76-3 Procedures in Addition to Notice and the 

Opportunity for Comment in Informal Rulemaking 
76-5 Interpretive Rules of General Applicability and 

Statements of General Policy 
77-3 Ex parte Communications in Informal Rulemaking 

Proceedings 
78-3 Time Limits on Agency Actions 
79-1 Hybrid Rulemaking Procedures of the Federal 

Trade Commission 
79-4 Public Disclosure Concerning the Use of Cost- 
Benefit and Similar Analyses in Regulation 
80-4 Decisional Officials' Participation in Rulemaking 

Proceedings 
80-6 Intragovernmental Conmiunications in Informal 

Rulemaking Proceedings 
82-4 Procedures for Negotiating Proposed Regulations 
83-2 The "Good Cause" Exemption from APA 

Rulemaking Requirements 
83-3 Agency Structures for Review of Decisions of 

Presiding Officers under the Administrative 

Procedure Act 
85-2 Agency Procedures for Performing Regulatory 

Analysis of Rules 
85-5 Procedures for Negotiating Proposed Regulations 
86-2 Use of Federal Rules of Evidence in Federal 

Agency Adjudications 



12 Administrative Procedure Act 



86-6 Petitions for Rulemaking 

87-1 Priority Setting and Management of Rulemaking by 

the Occupational Safety and Health Administration 
88-7 Valuation of Human Life in Regulatory 

Decisionmaking 
88-9 Presidential Review of Agency Rulemaking 
90-8 Rulemaking and Policymaking in the Medicaid 

Program 
§310.7 Views of the Administrative Conference on 

Proposals Pending in Congress to Amend the 

Informal Rulemaking Provisions of the 

Administrative Procedure Act 
§310.9 Statement on Guidelines for Choosing the 

Appropriate Level of Agency Policy Articulation 

4. M. Ruhlen, Manual for Administrative Law Judges 
(Administrative Conference of the U.S., rev. ed. 1982). 

5. U.S. Department of Justice, Attorney General's Manual on 
the Administrative Procedure Act (1947), reprinted in Edles and 
Nelson, Federal Regulatory Process: Agency Practices and 
Procedures y at 335. (Also reprinted as a separate volume by Wm. 
W. Gaunt & Sons, Inc., 1979.) 

6. U.S. Office of the Federal Register, Document Drafting 
Handbook (tq\. ed. 1991). 

7. Votava, Administrative Conference of the United States: A 
Bibliography 1968-1991 (Administrative Conference, 1991). 

in. Books and Articles 

1. K. Davis, Administrative Law Treatise (2d ed. 1978-84). 

2. Delong, Informal Rulemaking and the Integration of Law and 
Policy. 65 Va. L. Rev. 257 (1979). 

3. G. Edles and J. Nelson, Federal Regulatory Process: Agency 
Practices and Procedures (2d ed. 1989). 

4. C. Koch, Administrative Law and Practice (1985). 

5. Lubbers, Federal Administrative Law Judges: A Focus on 
Our Invisible Judiciary, 33 Ad. L. Rev. 109 (1981). 

6. J. O'Reilly, Administrative Rulemaking (1983). 

7. R. Pierce, S. Shapiro, & P. Verkuil, Administrative Law and 
Process (1985). 

8. Redish, How to Write Regulations (And Other Legal 
Documents) in Clear English, 1 Legal Notes and Viewpoints 
Quarterly (No. 4) 73 (1981) (Available from Document Design 



Administrative Procedure Act 13 



Center, American Institutes for Research, 1055 Thomas Jefferson 
St., NW, Washington, DC 20007). 

9. Scalia, Rulemaking as Politics (Chairman's Message), 34 Ad. 
L. Rev. V (1982). 

10. Stein, Mitchell and Mezines, Administrative Law (1990). 

11. P. Strauss, An Introduction to Administrative Justice in the 
United States (1989). 

12. Verkuil, The Emerging Concept of Administrative 
Procedure, 78 Columbia L. Rev. 258 (1978). 

13. Verkuil, A Study of Informal Adjudication Procedures, 43 
U. Chi. L. Rev. 739 (1976). 



Agency Procedural Rules: 

Agriculture 7 CFR §§1.27-.28, 1.130-.151, 

Parts 47, 50, 202, 900 
Architectural and Transportation 

Barriers Compliance Board 36 CFR Part 1 150 

Conmierce 

International Trade Administration 15 CFR Part 354 

National Oceanic and Atmospheric 

Administration 15 CFR Part 904 

Conmiodity Futures Trading Commission 17 CFR 

Parts 10, 12,13 

Consumer Product Safety Conmiission 16 CFR Parts 1025, 

1051, 1052 

Environmental Protection Agency 40 CFR Parts 22, 25, 

Parts 104, 108, §124.71, 
Parts 164, 209 

Federal Conmiunications Conmiission 47 CFR Part 1 

Federal Deposit Insurance Corporation 12 CFR Part 308 

Federal Emergency Management Agency.. 44 CFR Parts 1, 68 

Federal Energy Regulatory Commission 18 CFR Part 385 

Federal Labor Relations Authority.... 5 CFR Parts 2422, 2423 

Federal Maritime Commission 46 CFR Part 502 

Federal Mine Safety and 

Health Review Conmiission 29 CFR Part 2700 

Federal Reserve Board 12 CFR Parts 262, 263 

Federal Trade Commission 16 CFR §§1.7-.26, 

Part 3, §4.7 
Food and Drug Administration (HHS) 21 CFR 





14 Administrative Procedure Act 



Parts 10, 12, 16 

Housing and Urban Development 24 CFR Parts 26, 

1720,§3282.152 

Interior 43 CFR Part 4; 50 CFR Part 11 

International Trade Commission 19 CFR Part 210 

Interstate Commerce Commission 49 CFR 

Parts 1100- 1118 
Justice 

Drug Enforcement Administration 21 CFR 

§§1301.51-.57, 

§§1303.31-37, 

§§1311.51-.53, 

§§1312.41-.47, 

§§98.310-.314, 

Part 580; 

41 CFR Part 50-203 

Part 1316 

Other 28 CFR §48.10 

Labor 

Black Lung Benefits Cases 20 CFR §§725.350-. 483 

Longshoremen ' s Compensation Cases 20 CFR 

§§702.301-.394 
Office of Federal 

Contract Compliance 41 CFR §60-1.21-26, 

Part 60-30 

Other Cases 29 CFR §4.10, Part 6, 

§§40.101-.272,98.310-314, 
Part 580; 41 CFR Parts 50-203 

Merit Systems Protection Board 5 CFR Parts 1201, 

1203, 1209 

National Credit Union Administration 12 CFR Part 747 

National Labor Relations Board 29 CFR Parts 101, 102 

National Transportation Safety Board 49 CFR Part 821 

Nuclear Regulatory Commission 10 CFR Part 2 

Occupational Safety and Health 

Administration (Labor) 29 CFR Parts 1905, 1911 

Occupational Safety and Health Review Commission . . 29 CFR 

Part 2200 

Postal Rate Commission 39 CFR Part 3001 

Postal Service 39 CFR Parts 912-966 

Securities and Exchange Commission 17 CFR §§200.110- 

.114,Parts201,202 
Small Business Administration 13 CFR Parts 101.9, Parts 



Administrative Procedure Act 15 



134,142 

Social Security Administration (HHS) 20 CFR 

§§404.900-.996, 

§§410.601-.707, 

§§416.1400-. 1494; 

42 CFR §§405.701-.750, 

§§405.801-.872, 

§§405.1801-. 1889 

Transportation 

Coast Guard 46 CFR §5.501-.807 

Federal Aviation Administration... 14 CFR Parts 11, 13.63 
Federal Highway Administration.... 49 CFR Parts 386, 389 

Maritime Administration 46 CFR Part 201 

National Highway Traffic Safety Admin 49 CFR Parts 

511,553 

Office of the Secretary 14 CFR Part 302 

Treasury 

Bureau of Alcohol, Tobacco and Firearms 27 CFR 

§§178.71-.82,Part200 

Comptroller of the Currency 12 CFR Part 19 

Internal Revenue Service 26 CFR §601.601; 31 CFR 

§§10.50-76 



NOTE: Several of the above agencies, as well as other agencies 
with financial assistance programs, have published rules of practice 
for formal (ALJ) hearings to effectuate title VI of the Civil Rights 
Act, which guarantees nondiscrimination in such programs. 
Citations for these rules can be found in the CFR Index under the 
heading "civil rights." 



Appendix: 

1. Administrative Procedure Act, 5 U.S.C. §§551, 553-59, 701- 
06, 1305, 3105, 3344, 5372, 7521. 

2. Executive Order 12,291, 3 CFR 127 (1982), reprinted in 5 
U.S.C. §601 note (1982). 

3. Executive Order 12,498, 3 CFR 323 (1985), reprinted in 5 
U.S.C. §601 note (1988). 



B 



16 ADMrNISTRATTVE PROCEDURE ACT 



4. President's Memorandum for the Heads of Executive 
Departments and Agencies, 21 Weekly Comp. Pres. Doc. 13 
(Jan. 7, 1985). 

5. Office of Management and Budget, Regulatory Impact 
Analysis Guidance, Regulatory Program of the United States 
Government-1990 653 (1990). 

6. Office of Management and Budget, Memorandum for the 
Heads of Departments and Agencies, Presidential Review of 
Agency Rulemaking (April 3, 1989). 

7. U.S. Department of Justice, Attorney General's Manual on 
the Administrative Procedure Act (1947). 



Administrative Procedure Act 17 

Administrative Procedure Act 

Title 5, U.S. Code 

Chapter S-Administrative Procedure 

§551. Dennitions. 

§552. Public information; agency rules, opinions, orders, records, and 

proceedings. 

§552a. Records about individuals.' 

§552b. Open meetings. 

§553. Rulemaking. 

§554. Adjudications. 

§555. Ancillary matters. 

§556. Hearings; presiding employees; powers and duties; burden of 

proof; evidence; record as basis of decision. 

§557.Initial decisions; conclusiveness; review by agency; submissions 

by parties; contents of decisions; record. 

§558. Imposition of sanctions; determination of applications for 

licenses; suspension, revocation, and expiration of licenses. 

§559. Effect on other laws; effect of subsequent statute. 

♦ « 4t 4> 

§551. Definitions 

For the purpose of this subchapter — 

(1) "agency" means each authority of the Government of the United States, 
whether or not it is within or subject to review by another agency, but does not 
include — 

(A) the Congress; 

(B) the courts of the United States; 

(C) the governments of the territories or possessions of the United 
States; 

(D) the government of the District of Columbia; or except as to the 
requirements of section 552 of this title; 

(E) agencies composed of representatives of the parties or of 
representatives of organizations of the parties to the disputes determined by 
them; 

(F) courts martial and military commissions; 

(G) military authority exercised in the field in time of war or in 
occupied territory; or 




'So in original. Does not conform to section catchline. 



1 8 Administrative Procedure Act Appendix 



(H) functions conferred by sections 1738, 1739, 1743, and 1744 of 
title 12; chapter 2 of title 41; or sections 1622, 1884, 1891-1902, and former 
section 1641(b)(2), of title 50, appendix; 

(2) "person" includes an individual, partnership, corporation, association, or 
public or private organization other than an agency; 

(3) "party" includes a person or agency named or admitted as a party, or 
properly seeking and entitled as of right to be admitted as a party, in an agency 
proceeding, and a person or agency admitted by an agency as a party for limited 
purposes; 

(4) "rule" means the whole or a part of an agency statement of general or 
particular applicability and iiiture effect designed to implement, interpret, or 
prescribe law or policy or describing the organization, procedure, or practice 
requirements of an agency and includes the approval or prescription for the future 
of rates, wages, corporate or fmancial structures or reorganizations thereof, 
prices, facilities, appliances, services or allowances therefor or of valuations, 
costs, or accounting, or practices bearing on any of the foregoing; 

(5) "rule making" means agency process for formulating, amending, or 
repealing a rule; 

(6) "order" means the whole or a part of a final disposition, whether 
affirmative, negative, injunctive, or declaratory in form, of an agency in a matter 
other than rule making but including licensing; 

(7) "adjudication" means agency process for the formulation of an order; 

(8) "license" includes the whole or a part of an agency permit, certificate, 
approval, registration, charter, membership, statutory exemption or other form of 
permission; 

(9) "licensing" includes agency process respecting the grant, renewal, denial, 
revocation, suspension, annulment, withdrawal, limitation, amendment, 
modification, or conditioning of a license; 

(10) "sanction" includes the whole or a part of an agency — 

(A) prohibition, requirement, limitation, or other condition affecting 
the freedom of a person; 

(B) withholding of relief; 

(C) imposition of penalty or fine; 

(D) destruction, taking, seizure, or withholding of property; 

(E) assessment of damages, reimbursement, restitution, compensation, 
costs, charges, or fees; 

(F) requirement, revocation, or suspension of a license; or 

(G) taking other compulsory or restrictive action; 

(11) "relief includes the whole or a part of an agency — 

(A) grant of money, assistance, license, authority, exemption, 
exception, privilege, or remedy; 

(B) recognition of a claim, right, immunity, privilege, exemption, or 
exception; or 

(C) taking of other action on the application or petition of, and 
beneficial to, a person; 

(12) "agency proceeding" means an agency process as defmed by paragraphs 
(5), (7), and (9) of this section; 

(13) "agency action" includes the whole or a part of an agency rule, order, 
license, sanction, relief, or the equivalent or denial thereof, or failure to act; and 



Administrative Procedure Act 19 



(14) "ex parte communication" means an oral or written communication not 
on the public record with respect to which reasonable prior notice to all parties is 
not given, but it shall not include requests for status reports on any matter or 
proceeding covered by this subchapter. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 381; Pub. L. No. 94-409, §4(b), 
Sept. 13, 1976, 90 Stat. 1247.) 

* « « « 



§553. Rulemaking 

(a) This section applies, according to the provisions thereof, except to the 
extent that there is involved — 

(1) a military or foreign affairs function of the United States; or 

(2) a matter relating to agency management or personnel or to public 
property, loans, grants, benefits, or contracts. 

(b) General notice of proposed rule making shall be published in the Federal 
Register, unless persons subject thereto are named and either personally served or 
otherwise have actual notice thereof in accordance with law. The notice shall 
include — 

(1) a statement of the time, place, and nature of public rule making 
proceedings; 

(2) reference to the legal authority under which the rule is proposed; and 

(3) either the terms or substance of the proposed rule or a description of the 
subjects and issues involved. 

Except when notice or hearing is required by statute, this subsection does not 
apply- 

(A) to interpretative rules, general statements of policy, or rules of 
agency organization, procedure, or practice; or 

(B) when the agency for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the rules issued) that notice 
and public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest. 

(c) After notice required by this section, the agency shall give interested 
persons an opportunity to participate in the rule making through submission of 
written data, views, or arguments with or without opportunity for oral 
presentation. After consideration of the relevant matter presented, the agency shall 
incorporate in the rules adopted a concise general statement of their basis and 
purpose. When rules are required by statute to be made on the record after 
opportunity for an agency hearing, sections 556 and 557 of this title apply instead 
of this subsection. 

(d) The required publication or service of a substantive rule shall be made not 
less than 30 days before its effective date, except — 

(1) a substantive rule which grants or recognizes an exemption or relieves a 
restriction; 

(2) interpretative rules and statements of policy; or 

(3) as otherwise provided by the agency for good cause found and published 
with the rule. 




D 



20 Administrative Procedure Act Appendix 



(e) Each agency shall give an interested person the right to petition for the 
issuance, amendment, or repeal of a rule. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 383.) 

§554. Adjudications 

(a) This section applies, according to the provisions thereof, in every case of 
adjudication required by statute to be determined on the record after opportunity 
for an agency hearing, except to the extent that there is involved- 

(1) a matter subject to a subsequent trial of the law and the facts de novo in a 
court; 

(2) the selection or tenure of an employee, except a^ administrative law judge 
appointed under section 3105 of this title; 

(3) proceedings in which decisions rest solely on inspections, tests, or 
elections; 

(4) the conduct of military or foreign affairs functions; 

(5) cases in which an agency is acting as an agent for a court; or 

(6) the certification of worker representatives. 

(b) Persons entitled to notice of an agency hearing shall be timely informed 
of— 

(1) the time, place, and nature of the hearing; 

(2) the legal authority and jurisdiction under which the hearing is to be held; 
and 

(3) the matters of fact and law asserted. 

When private persons are the moving parties, other parties to the proceeding shall 
give prompt notice of issues controverted in fact or law; and in other instances 
agencies may by rule require responsive pleading. In fixing the time and place for 
hearings, due regard shall be had for the convenience and necessity of the parties 
or their representatives. 

(c) The agency shall give all interested parties opportunity for — 

(1) the submission and consideration of facts, arguments, offers of settlement, 
or proposals of adjustment when time, the nature of the proceeding, and the public 
interest permit; and 

(2) to the extent that the parties are unable so to determine a controversy by 
consent, hearing and decision on notice and in accordance with sections 556 and 
557 of this title. 

(d) The employee who presides at the reception of evidence pursuant to 
section 556 of this title shall make the recommended decision or initial decision 
required by section 557 of this title, unless he becomes unavailable to the agency. 
Except to the extent required for the disposition of ex parte matters as authorized 
by law, such an employee may not — 

(1) consult a person or party on a fact in issue, unless on notice and 
opportunity for all parties to participate; or 

(2) be responsible to or subject to the supervision or direction of an employee 
or agent engaged in the performance of investigative or prosecuting functions for 
an agency. 



^So in original. 



Administrative Procedure Act 21 



An employee or agent engaged in the performance of investigative or prosecuting 
functions for an agency in a case may not, in that or a factually related case, 
participate or advise in the decision, recommended decision, or agency review 
pursuant to section 557 of this title, except as witness or counsel in public 
proceedings. This subsection does not apply — 

(A) in determining applications for initial licenses; 

(B) to proceedings involving the validity or application of rates, 
facilities, or practices of public utilities or carriers; or 

(C) to the agency or a member or members of the body comprising the 
agency. 

(e) The agency, with like effect as in the case of other orders, and in its sound 
discretion, may issue a declaratory order to terminate a controversy or remove 
uncertainty. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 384; Pub. L. No. 95-251, §2(a)(l). 
Mar. 27, 1978, 92 Stat. 183.) 

§555. Ancillary matters 

(a) This section applies, according to the provisions thereof, except as 
otherwise provided by this subchapter. 

(b) A person compelled to appear in person before an agency or 
representative thereof is entitled to be accompanied, represented, and advised by 
counsel or, if permitted by the agency, by other qualified representative. A party 
is entitled to appear in person or by or with counsel or other duly qualified 
representative in an agency proceeding. So far as the orderly conduct of public 
business permits, an interested person may appear before an agency or its 
responsible employees for the presentation, adjustment, or determination of an 
issue, request, or controversy in a proceeding, whether interlocutory, summary, 
or otherwise, or in connection with an agency function. With due regard for the 
convenience and necessity of the parties or their representatives and within a 
reasonable time, each agency shall proceed to conclude a matter presented to it. 
This subsection does not grant or deny a person who is not a lawyer the right to 
appear for or represent others before an agency or in an agency proceeding. 

(c) Process, requirement of a report, inspection, or other investigative act or 
demand may not be issued, made, or enforced except as authorized by law. A 
person compelled to submit data or evidence is entitled to retain or, on payment of 
lawfully prescribed costs, procure a copy or transcript thereof, except that in a 
nonpublic investigatory proceeding the witness may for good cause be limited to 
inspection of the official transcript of his testimony. 

(d) Agency subpenas authorized by law shall be issued to a party on request 
and, when required by rules of procedure, on a statement or showing of general 
relevance and reasonable scope of the evidence sought. On contest, the court shall 
sustain the subpena or similar process or demand to the extent that it is found to 
be in accordance with law. In a proceeding for enforcement, the court shall issue 
an order requiring the appearance of the witness or the production of the evidence 
or data within a reasonable time under penalty of punishment for contempt in case 
of contumacious failure to comply. 

(e) Prompt notice shall be given of the denial in whole or in part of a written 
application, petition, or other request of an interested person made in connection 




22 Administrative Procedure Act Appendix 



with any agency proceeding. Except in affirming a prior denial or when the denial 
is self-explanatory, the notice shall be accompanied by a brief statement of the 
grounds for denial. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 385.) 

§556. Hearings; presiding employees; powers and duties; burden of 
proof; evidence; record as basis of decision 

(a) This section applies, according to the provisions thereof, to hearings 
required by section 553 or 554 of this title to be conducted in accordance with this 
section. 

(b) There shall preside at the taking of evidence — 

(1) the agency; 

(2) one or more members of the body which comprises the agency; or 

(3) one or more administrative law judges appointed under section 3105 of 
this title. 

This subchapter does not supersede the conduct of specified classes of 
proceedings, in whole or in part, by or before boards or other employees specially 
provided for by or designated under statute. The functions of presiding employees 
and of employees participating in decisions in accordance with section 557 of this 
title shall be conducted in an impartial manner. A presiding or participating 
employee may at any time disqualify himself. On the filing in good faith of a 
timely and sufficient affidavit of personal bias or other disqualification of a 
presiding or participating employee, the agency shall determine the matter as a 
part of the record and decision in the case. 

(c) Subject to published rules of the agency and within its powers, employees 
presiding at hearings may — 

(1) administer oaths and affirmations; 

(2) issue subpenas authorized by law; 

(3) rule on offers of proof and receive relevant evidence; 

(4) take depositions or have depositions taken when the ends of justice would 
be served; 

(5) regulate the course of the hearing; 

(6) hold conferences for the settlement or simplification of the issues by 
consent of the parties or by the use of alternative means of dispute resolution as 
provided in subchapter IV of this chapter; 

(7) inform the parties as to the availability of one or more alternative means of 
dispute resolution, and encourage use of such methods; 

(8) require the attendance at any conference held pursuant to paragraph (6) of 
at least one representative of each party who has authority to negotiate concerning 
resolution of issues in controversy; 

(9) dispose of procedural requests or similar matters; 

(10) make or recommend decisions in accordance with section 557 of this 
title; and 

(11) take other action authorized by agency rule consistent with this 
subchapter. 

(d) Except as otherwise provided by statute, the proponent of a rule or order 
has the burden of proof. Any oral or documentary evidence may be received, but 
the agency as a matter of policy shall provide for the exclusion of irrelevant, 



Administrative Procedure Act 23 



immaterial, or unduly repetitious evidence. A sanction may not be imposed or rule 
or order issued except on consideration of the whole record or those parts thereof 
cited by a party and supported by and in accordance with the reliable, probative, 
and substantial evidence. The agency may, to the extent consistent with the 
interests of justice and the policy of the underlying statutes administered by the 
agency, consider a violation of section 557(d) of this title sufficient grounds for a 
decision adverse to a party who has knowingly committed such violation or 
knowingly caused such violation to occur. A party is entitled to present his case or 
defense by oral or documentary evidence, to submit rebuttal evidence, and to 
conduct such cross-examination as may be required for a full and true disclosure 
of the facts. In rule making or determining claims for money or benefits or 
applications for initial licenses an agency may, when a party will not be 
prejudiced thereby, adopt procedures for the submission of all or part of the 
evidence in written form. 

(e) The transcript of testimony and exhibits, together with all papers and 
requests filed in the proceeding, constitutes the exclusive record for decision in 
accordance with section 557 of this title and, on payment of lawfully prescribed 
costs, shall be made available to the parties. When an agency decision rests on 
official notice of a material fact not appearing in the evidence in the record, a 
party is entitled, on timely request, to an opportunity to show the contrary. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 386; Pub. L. No. 94-409, §4(c), 
Sept. 13, 1976, 90 Stat. 1247; Pub. L. No. 95-251, §2(a)(l). Mar. 27, 1978, 92 
Stat. 183; Pub. L. No. 101-552, §4(a), Nov. 15, 1990, 104 Stat. 2737.) 

§557. Initial decisions; conclusiveness; review by agency; submissions 
by parties; contents of decisions; record 

(a) This section applies, according to the provisions thereof, when a hearing is 
required to be conducted in accordance with section 556 of this title. 

(b) When the agency did not preside at the reception of the evidence, the 
presiding employee or, in cases not subject to section 554(d) of this title, an 
employee qualified to preside at hearings pursuant to section 556 of this title, shall 
initially decide the case unless the agency requires, either in specific cases or by 
general rule, the entire record to be certified to it for decision. When the presiding 
employee makes an initial decision, that decision then becomes the decision of the 
agency without further proceedings unless there is an appeal to, or review on 
motion of, the agency within time provided by rule. On appeal from or review of 
the initial decision, the agency has all the powers which it would have in making 
the initial decision except as it may limit the issues on notice or by rule. When the 
agency makes the decision without having presided at the reception of the 
evidence, the presiding employee or an employee qualified to preside at hearings 
pursuant to section 556 of this title shall first recommend a decision, except that in 
rule making or determining applications for initial licenses — 

(1) instead thereof the agency may issue a tentative decision or one of its 
responsible employees may recommend a decision; or 

(2) this procedure may be omitted in a case in which the agency finds on the 
record that due and timely execution of its functions imperatively and unavoidably 
so requires. 




24 Administrative Procedure Act Appendix 



(c) Before a recommended, initial, or tentative decision, or a decision on 
agency review of the decision of subordinate employees, the parties are entitled to 
a reasonable opportunity to submit for the consideration of the employees 
participating in the decisions — 

(1) proposed findings and conclusions; or 

(2) exceptions to the decisions or recommended decisions of subordinate 
employees or to tentative agency decisions; and 

(3) supporting reasons for the exceptions or proposed findings or conclusions. 
The record shall show the ruling on each finding, conclusion, or exception 
presented. All decisions, including initial, recommended, and tentative decisions, 
are a part of the record and shall include a statement of— 

(A) findings and conclusions, and the reasons or basis therefor, on aU 
the material issues of fact, law, or discretion presented on the record; and 

(B) the appropriate rule, order, sanction, relief, or denial thereof. 
(d)(1) In any agency proceeding which is subject to subsection (a) of this 

section, except to the extent required for the disposition of ex parte matters as 
authorized by law — 

(A) no interested person outside the agency shall make or knowingly 
cause to be made to any member of the body comprising the agency, 
administrative law judge, or other employee who is or may reasonably be 
expected to be involved in the decisional process of the proceeding, an ex 
parte communication relevant to the merits of the proceeding; 

(B) no member of the body comprising the agency, administrative law 
judge, or other employee who is or may reasonably be expected to be 
involved in the decisional process of the proceeding, shall make or knowingly 
cause to be made to any interested person outside the agency an ex parte 
communication relevant to the merits of the proceeding; 

(C) a member of the body comprising the agency, administrative law 
judge, or other employee who is or may reasonably be expected to be 
involved in the decisional process of such proceeding who receives, or who 
makes or knowingly causes to be made, a communication prohibited by this 
subsection shall place on the public record of the proceeding: 

(i) all such written communications; 

(ii) memoranda stating the substance of all such oral 
communications; and 

(iii) all written responses, and memoranda stating the substance 
of all oral responses, to the materials described in clauses (i) and (ii) of this 
subparagraph; 

(D) upon receipt of a communication knowingly made or knowingly 
caused to be made by a party in violation of this subsection, the agency, 
administrative law judge, or other employee presiding at the hearing may, to 
the extent consistent with the interests of justice and the policy of the 
underlying statutes, require the party to show cause why his claim or interest 
in the proceeding should not be dismissed, denied, disregarded, or otherwise 
adversely affected on account of such violation; and 

(E) the prohibitions of this subsection shall apply beginning at such 
time as the agency may designate, but in no case shall they begin to apply 
later than the time at which a proceeding is noticed for hearing unless the 
person responsible for the communication has knowledge that it will be 



Adnqnistrative Procedure Act 25 



noticed, in which case the prohibitions shall apply beginning at the time of his 

acquisition of such knowledge. 

(2) This subsection does not constitute authority to withhold information from 
Congress. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 387; Pub. L. No. 94-409, §4(a), 
Sept. 13, 1976, 90 Stat. 1246.) 

§558. Imposition of sanctions; determination of applications for 
licenses; suspension, revocation, and expiration of licenses 

(a) This section applies, according to the provisions thereof, to the exercise of 
a power or authority. 

(b) A sanction may not be imposed or a substantive rule or order issued 
except within jurisdiction delegated to the agency and as authorized by law. 

(c) When apphcation is made for a license required by law, the agency, with 
due regard for the rights and privileges of all the interested parties or adversely 
affected persons and within a reasonable time, shall set and complete proceedings 
required to be conducted in accordance with sections 556 and 557 of this title or 
other proceedings required by law and shall make its decision. Except in cases of 
willfulness or those in which public health, interest, or safety requires otherwise, 
the withdrawal, suspension, revocation, or annulment of a license is lawful only 
if, before the institution of agency proceedings therefor, the licensee has been 
given — 

(1) notice by the agency in writing of the facts or conduct which may warrant 
the action; and 

(2) opportunity to demonstrate or achieve compliance with all lawful 
requirements. 

When the licensee has made timely and sufficient application for a renewal or a 
new license in accordance with agency rules, a license with reference to an 
activity of a continuing nature does not expire until the application has been fmally 
determined by the agency. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 388.) 

§559. Effect on other laws; effect of subsequent statute 

This subchapter, chapter 7, and sections 1305, 3105, 3344, 4301(2)(E), 5372, 
and 7521 of this title, and the provisions of section 5335(a)(B) of this title that 
relate to administrative law judges, do not limit or repeal additional requirements 
imposed by statute or otherwise recognized by law. Except as otherwise required 
by law, requirements or privileges relating to evidence or procedure apply equally 
to agencies and persons. Each agency is granted the authority necessary to 
comply with the requirements of this subchapter through the issuance of rules or 
otherwise. Subsequent statute may not be held to supersede or modify this 
subchapter, chapter 7, sections 1305, 3105, 3344, 4301(2)(E), 5372, or 7521 of 
this title, or the provisions of section 5335(a)(B) of this title that relate to 
administrative law judges, except to the extent that it does so expressly. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 388; Pub. L. No. 90-623, §1(1), 
Oct. 22, 1968, 82 Stat. 1312; Pub. L. No. 95-251, §2(a)(l). Mar. 27, 1978, 92 





26 Administrative Procedure Act Appendix 



Stat. 183; Pub. L. No. 95-454, title VIII, §801(a)(3)(B)(iii), Oct. 13, 1978, 92 
SUt. 1221.) 

« « * ♦ 

Chapter 7- Judicial Review 

§701. Application; definitions. 

§702. Right of review. 

§703. Form and venue of proceeding. 

§704. Actions reviewable. 

§705. Relief pending review. 

§706. Scope of review. 

§701. Application; definitions 

(a) This chapter applies, according to the provisions thereof, except to the 
extent that — 

(1) statutes preclude judicial review; or 

(2) agency action is committed to agency discretion by law. 

(b) For the purpose of this chapter — 

(1) "agency" means each authority of the Government of the United States, 
whether or not it is within or subject to review by another agency, but does not 
include — 

(A) the Congress; 

(B) the courts of the United States; 

(C) the governments of the territories or possessions of the United 
States; 

(D) the government of the District of Columbia; 

(E) agencies composed of representatives of the parties or of 
representatives of organizations of the parties to the disputes determined by 
them; 

(F) courts martial and military commissions; 

(G) military authority exercised in the field in time of war or in 
occupied territory; or 

(H) functions conferred by sections 1738, 1739, 1743, and 1744 of 
title 12; chapter 2 of title 41; or sections 1622, 1884, 1891-1902, and former 
section 1641(b)(2), of title 50, appendix; and 

(2) "person", "rule", "order", "license", "sanction", "relief, and "agency 
action" have the meanings given them by section 551 of this title. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 392.) 

§702. Right of review 

A person suffering legal wrong because of agency action, or adversely 
affected or aggrieved by agency action within the meaning of a relevant statute, is 
entitled to judicial review thereof. An action in a court of the United States 
seeking relief other than money damages and stating a claim that an agency or an 



Administrative Procedure Act 27 



officer or employee thereof acted or failed to act in an official capacity or under 
color of legal authority shall not be dismissed nor relief therein be denied on the 
ground that it is against the United States or that the United States is an 
indispensable party. The United States may be named as a defendant in any such 
action, and a judgment or decree may be entered against the United States: 
Provided, That any mandatory or injunctive decree shall specify the Federal 
officer or officers (by name or by title), and their successors in office, personally 
responsible for compliance. Nothing herein (1) affects other limitations on judicial 
review or the power or duty of the court to dismiss any action or deny relief on 
any other appropriate legal or equitable ground; or (2) confers authority to grant 
relief if any other statute that grants consent to suit expressly or impliedly forbids 
the relief which is sought. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 392; Pub. L. No. 94-574, §1, Oct. 
21, 1976, 90 Stat. 2721.) 

§703. Form and venue of proceeding 

The form of proceeding for judicial review is the special statutory review 
proceeding relevant to the subject matter in a court specified by statute or, in the 
absence or inadequacy thereof, any applicable form of legal action, including 
actions for declaratory judgments or writs of prohibitory or mandatory injunction 
or habeas corpus, in a court of competent jurisdiction. If no special statutory 
review proceeding is applicable, the action for judicial review may be brought 
against the United States, the agency by its official title, or the appropriate officer. 
Except to the extent that prior, adequate, and exclusive opportunity for judicial 
review is provided by law, agency action is subject to judicial review in civil or 
criminal proceedings for judicial enforcement. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 392; Pub. L. No. 94-574, §1, Oct. 
21, 1976, 90 Stat. 2721.) 

§704. Actions reviewable 

Agency action made reviewable by statute and final agency action for which 
there is no other adequate remedy in a court are subject to judicial review. A 
preliminary, procedural, or intermediate agency action or ruling not directly 
reviewable is subject to review on the review of the fmal agency action. Except as 
otherwise expressly required by statute, agency action otherwise fmal is final for 
the purposes of this section whether or not there has been presented or determined 
an application for a declaratory order, for any form of reconsiderations, or, unless 
the agency otherwise requires by rule and provides that the action meanwhile is 
inoperative, for an appeal to superior agency authority. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 392.) 

§705. Relief pending review 

When an agency finds that justice so requires, it may postpone the effective 
date of action taken by it, pending judicial review. On such conditions as may be 
required and to the extent necessary to prevent irreparable injury, the reviewing 
court, including the court to which a case may be taken on appeal from or on 





28 Administrative Procedure Act Appendix 



application for certiorari or other writ to a reviewing court, may issue all 

necessary and appropriate process to postpone the effective date of an agency 

action or to preserve status or rights pending conclusion of the review 

proceedings. 

(Pub. L. No. 89-554, Sept. 6, 1966. 80 Stat. 393.) 

§706. Scope of review 

To the extent necessary to decision and when presented, the reviewing court 
shall decide all relevant questions of law, interpret constitutional and statutory 
provisions, and determine the meaning or applicability of the terms of an agency 
action. The reviewing court shall — 

(1) compel agency action unlawfully withheld or unreasonably delayed; and 

(2) hold unlawful and set aside agency action, findings, and conclusions found 
to be — 

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in 
accordance with law; 

(B) contrary to constitutional right, power, privilege, or immunity; 

(C) in excess of statutory jurisdiction, authority, or limitations, or 
short of statutory right; 

(D) without observance of procedure required by law; 

(E) unsupported by substantial evidence in a case subject to sections 
556 and 557 of this title or otherwise reviewed on the record of an agency 
hearing provided by statute; or 

(F) unwarranted by the facts to the extent that the facts are subject to 
trial de novo by the reviewing court. 

In making the foregoing determinations, the court shall review the whole record 
or those parts of it cited by a party, and due account shall be taken of the rule of 
prejudicial error. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 393.) 

4> ♦ « « 



§1305. Administrative law judges 

For the purpose of section^ 3105, 3344, 4301(2)(D), and 5372 of this title and 
the provisions of section 5335(a)(B) of this title that relate to administrative law 
judges, the Office of Personnel Management may, and for the purpose of section 
7521 of this title, the Merit Systems Protection Board may investigate, require 
reports by agencies, issue reports, including an annual report to Congress, 
prescribe regulations, appoint advisory committees as necessary, recommend 
legislation, subpena witnesses and records, and pay witness fees as established for 
the courts of the United States. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 402; Pub. L. No. 90-83, §1(3), Sept. 
11, 1967, 81 Stat. 196; Pub. L. No. 95-251, §2(a)(l), (b)(1), Mar. 27, 1978, 92 



^So in original. Probably should be "sections". 



Administrative Procedure Act 29 



Stat. 183; Pub. L. No. 95-454, title VIII, §801(a)(3)(B)(iii), title IX, §906(a)(12), 
Oct. 13, 1978, 92 Stat. 1221, 1225.) 

* * * « 

§3105. Appointment of administrative law judges 

Each agency shall appoint as many administrative law judges as are necessary 
for proceedings required to be conducted in accordance with sections 556 and 557 
of this title. Administrative law judges shall be assigned to cases in rotation so far 
as practicable, and may not perform duties inconsistent with their duties and 
responsibilities as administrative law judges. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 415; Pub. L. No. 95-251, §2(a)(l), 
(b)(2), (d)(1), Mar. 27, 1978, 92 Stat. 183, 184.) 

* ♦ ♦ « 

§3344. Details; administrative law judges 

An agency as defmed by section 551 of this title which occasionally or 
temporarily is insufficiently staffed with administrative law judges appointed under 
section 3105 of this title may use administrative law judges selected by the Office 
of Personnel Management from and with the consent of other agencies. 
(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 425; Pub. L. No. 95-251, §2(a)(l), 
(b)(2), Mar. 27, 1978, 92 Stat. 183; Pub. L. No. 95-454, title IX, §906(a)(2), Oct. 
13, 1978. 92 Stat. 1224.) 

* « ♦ * 



§5372. Administrative law judges 

(a) For the purposes of this section, the term "administrative law judge" 
means an administrative law judge appointed under section 3105. 

(b)(1) There shall be 3 levels of basic pay for administrative law judges 
(designated as AL-1, 2, and 3, respectively), and each such judge shall be paid at 
1 of those levels, in accordance with the provisions of this section. The rates of 
basic pay for those levels shall be as follows: 

AL-3, rate A 65 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-3, rate B 70 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-3, rate C 75 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-3, rate D 80 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-3, rate E 85 percent of the rate of basic pay for level FV of the Executive 
Schedule. 



30 Administrative Procedure Act Appendix 



AL-3, rate F 90 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-2 95 percent of the rate of basic pay for level IV of the Executive 
Schedule. 

AL-1 The rate of basic pay for level IV of the Executive Schedule. 

(2) The Office of Personnel Management shall determine, in accordance with 
procedures which the Office shall by regulation prescribe, the level in which each 
administrative-law-judge position shall be placed and the qualifications to be 
required for appointment to each level. 

(3)(A) Upon appointment to a position in AL-3, an administrative law judge 
shall be paid at rate A of AL-3, and shall be advanced successively to rates B, C, 
and D of that level upon completion of 52 weeks of service in the next lower rate, 
and to rates E and F of that level upon completion of 104 weeks of service in the 
next lower rate. 

(B) The Office of Personnel Management may provide for 

appointment of an administrative law judge in AL-3 at an advanced rate under 

such circumstances as the Office may determine appropriate. 

(c) The Office of Personnel Management shall,^ prescribe regulations 
necessary to administer this section. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 473, §5362; Pub. L. No. 95-251, 
§2(a)(l). (b)(1), Mar. 27, 1978, 92 Stat. 183; renumbered §5372 and amended 
Pub. L. No. 95-454, title VIII, §801(a)(3)(A)(ii), title IX, §906(a)(2), Oct. 13, 
1978, 92 Stat. 1221, 1224; Pub. L. No. 101-509, title V. §529 [title I, 
§104(a)(l)], Nov. 5, 1990, 104 Stat. 1427, 1445.) 

Amendments 

1990 Pub. L. No. 101-509 amended section generally. Prior to amendment, 
section read as follows: "Administrative law judges appointed under section 3105 
of this title are entitled to pay prescribed by the Office of Personnel Management 
independently of agency recommendations or ratings and in accordance with 
subchapter III of this chapter and chapter 51 of this title." 

* * * * 

§7521. Actions against administrative law judges 

(a) An action may be taken against an administrative law judge appointed 
under section 3105 of this title by the agency in which the administrative law 
judge is employed only for good cause established and determined by the Merit 
Systems Protection Board on the record after opportunity for hearing before the 
Board. 

(b) The actions covered by this section are — 

(1) a removal; 

(2) a suspension; 

(3) a reduction in grade; 

(4) a reduction in pay; and 



^So in original. The comma probably should not appear. 



Administrative Procedure Act 3 1 



(5) a furlough of 30 days or less; 
but do not include — 

(A) a suspension or removal under section 7532 of this title; 

(B) a reduction-in-force action under section 3502 of this title; or 

(C) any action initiated under section 1215 of this title. 
(Added Pub. L. No. 95-454, title II, §204(a), Oct. 13, 1978, 92 Stat. 1137, and 
amended Pub. L. No. 101-12, §9(a)(2), Apr. 10, 1989, 103 Stat. 35.) 




Executive Order 1 2,29 1 33 



Executive Order 12,291 
FEDERAL REGULATION 

3 CFR 127 (1981 Compilation) 



Executive Order 12291 of February 17. IWl 

Federal Regulation 

By the authority vested in me as President by the Constitution and laws of 
the United States of America, and in order to reduce the burdens of exist- 
ing and future regulations, increase agency accountability for regulatory ac- 
tions, provide for presidential oversight of the regulatory process, minimize 
duplication and conflict of regulations, and insure well-reasoned regula- 
tions, it is hereby ordered as follows: 

Section 1. Definitions. For the purposes of this Order: 

(a) "Regulation" or "rule" means an agency statement of general applicabil- 
ity and future effect designed to implement, interpret, or prescribe law or 
policy or describing the procedure or practice requirements of an agency, 
but does not include: 

(1) Administrative actions governed by the provisions of Sections 556 and 
557 of Title 5 of the United States Code: 

(2) Regulations issued with respect to a mibtary or foreign affairs function 
of the United States; or 

(3) Regulations related to agency organization, management, or personnel. 

(b) "Major rule" means any regulation that is likely to result in: 

(1) An annual effect on the economy of $100 million or more; 

(2) A major increase in costs or prices for consumers, individual industries. 
Federal. State, or local government agencies, or geographic regions; or 



127 




34 Administrative Procedure Act Appendix 



(3) Significant adverse effects on competition, employment, investment, pro- 
ductivity, innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic or export markets. 

(c) "Director" means the Director of the Office of Management and Budget. 

(d) "Agency" means any authority of the United States that is an "agency" 
under 44 U.S.C. 3502(1). excluding those agencies specified in 44 U.S.C. 
3502(10). 

(e) "Task Force" means the Presidential Task Force on Regulatory Relief. 

Sec. 2. General Requirements. In promulgating new regulations, reviewing 
existing regulations, and developing legislative proposals concerning regula- 
tion, all agencies, to the extent permitted by law. shall adhere to the follow- 
ing requirements: 

(a) Administrative decisions shall be based on adequate information con- 
cerning the need for and consequences of proposed government action: 

(b) Regulatory action shall not be undertaken unless the potential benefits 
to society for the regulation outweigh the potential costs to society; 

(c) Regulatory objectives shall be chosen to maximize the net benefits to 
society; 

(d) Among alternative approaches to any given regulatory objective, the al- 
ternative involving the least net cost to society shall be chosen; and 

(e) Agencies shall set regulatory priorities with the aim of maximizing the 
aggregate net benefits to society, taking into account the condition of the 
particular industries affected by regulations, the condition of the national 
economy, and other regulatory actions contemplated for the future. 

Sec. 3. Regulatory Impact Analysis and Review. 

(a) In order to implement Section 2 of this Order, each agency shall, in con- 
nection with every major rule, prepare, and to the extent permitted by law 
consider, a Regulatory Impact Analysis. Such Analyses may be combined 
with any Regulatory Flexibility Analyses performed under 5 U.S.C. 603 and 
604. 

(b) Each agency shall initially determine whether a rule it intends to pro- 
pose or to issue is a major rule, provided that, the Director, subject to the 
direction of the Task Force, shall have authority, in accordance with Sec- 
tions 1(b) and 2 of this Order, to prescribe criteria for making such determi- 
nations, to order a rule to be treated as a major rule, and to require any set 
of related rules to be considered together as a major rule. 

(c) Except as provided in Section 8 of this Order, agencies shall prepare 
Regulatory Impact Analyses of major rules and transmit them, along with 
all notices of proposed rulemaking and all final rules, to the Director as follows: 

(1) If no notice of proposed rulemaking is to be published for a proposed 
major rule that is not an emergency rule, the agency shall prepare only a 
final Regulatory Impact Analysis, which shall be transmitted, along with 
the proposed rule, to the Director at least 60 days prior to the publication of 
the ma)or rule as a final rule; 

128 



Executive Order 1 2,29 1 35 



(2) With respect to all other major rules, the agency shall prepare a prelimi- 
nary Regulatory Impact Analysis, which shall be transmitted, along with a 
notice of proposed rulemaking, to the Director at least 60 days prior to the 
publication of a notice of proposed rulemaking, and a final Regulatory 
Impact Analysis, which shall be transmitted along with the final rule at 
least 30 days prior to the publication of the major rule as a final rule; 

(3) For all rules other than major rules, agencies shall submit to the Direc- 
tor, at least 10 days prior to publication, every notice of proposed rulemak- 
ing and final rule. 

(d) To permit each proposed major rule to be analyzed in light of the re- 
quirements stated in Section 2 of this Order, each preliminary and final 
Regulatory Impact Analysis shall contain the following information: 

(1) A description of the potential benefits of the rule, including any benefi- 
cial effects that cannot be quantified in monetary terms, and the identifica- 
tion of those likely to receive the benefits; 

(2) A description of the potential costs of the rule, including any adverse 
effects that cannot be quantified in monetary terms, and the identification 
of those likely to bear the costs; 

(3) A determination of the potential net benefits of the rule, including an 
evaluation of effects that cannot be quantified in monetary terms; 

(4) A description of alternative approaches that could substantially achieve 
the same regulatory goal at lower cost, together with an analysis of this po- 
tential benefit and costs and a brief explanation of the legal reasons why 
such alternatives, if proposed, could not be adopted: and 

(5) Unless covered by the description required under paragraph (4) of this 
subsection, an explanation of any legal reasons why the rule cannot be 
based on the requirements set forth in Section 2 of this Order. 

(e) (1) The Director, subject to the direction of the Task Force, which shall 
resolve any issues raised under this Order or ensure that they are present- 
ed to the President, is authorized to review any preliminary or final Regula- 
tory Impact Analysis, notice of proposed rulemaking, or final rule based on 
the requirements of this Order. 

(2) The Director shall be deemed to have concluded review unless the Di- 
rector advises an agency to the contrary under subsection [i] of this 
Section; 

(A) Within 60 days of a submission under subsection (c)(1) or a submission 
of a preliminary Regulatory Impact Analysis or notice of proposed rulemak- 
ing under subsection (c)(2); 

(B) Within 30 days of the submission of a final Regulatory Impact Analysis 
and a final rule under subsection (c)(2); and 

(C) Within 10 days of the submission of a notice of proposed rulemaking or 
final rule under subsection (c)(3). 

(f) (1) Upon the request of the Director, an agency shall consult with the 
Director concerning the review of a preliminary Regulatory Impact Analysis 
or notice of proposed rulemaking under this Order, and shall, subject to 
Section 8(a)(2) of this Order, refrain from publishing its preliminary Regula- 

129 



36 Administrative Procedure Act Appendix 



tory Impact Analysis or notice of proposed rulemaking until such review is 
concluded. 

(2) Upon receiving notice that the Director intends to submit views with re- 
spect to any final Regulatory Impact Analysis or final rule, the agency 
shall, subject to Section 8(a)(2) of this Order, refrain from publishing its 
final Regulatory Impact Analysis or final rule until the agency has respond- 
ed to the Director's views, and incorporated those views and the agency's 
response in the rulemaking file. 

(3) Nothing in this subsection shall be construed as displacing the agencies" 
responsibilities delegated by law. 

(g) For every rule for which an agency publishes a notice of proposed rule- 
making, the agency shall include in its notice: 

(1) A brief statement setting forth the agency's initial determination wheth- 
er the proposed rule is a major rule, together with the reasons underlymg 
that determination: and 

(2) For each proposed major rule, a brief summary of the agency's prelimi- 
nary Regulatory Impact Analysis. 

(h) Agencies shall make their preliminary and final Regulatory Impact 
Analyses available to the public. 

(i) Agencies shall initiate reviews of currently effective rules in accordance 
with the purposes of this Order, and perform Regulatory Impact Analyses 
of currently effective major rules. The Director, subject to the direction of 
the Task Force, may designate currently effective rules for review in ac- 
cordance with this Order, and establish schedules for reviews and Analy- 
ses under this Order. 

Sec. 4. Regulatory Review. Before approving any final major rule, each 
agency shall: 

(a) Make a determination that the regulation is clearly within the authority 
delegated by law and consistent with congressional intent, and include in 
the Federal Register at the time of promulgation a memorandum of law sup- 
porting that determination. 

(b) Make a determination that the factual conclusions upon which the rule 
is based have substantial support in the agency record, viewed as a whole, 
with full attention to public comments in general and the comments of per- 
sons directly affected by the rule in particular. 

Sec. 5. Regulatory Agendas. 

(a) Each agency shall publish, in October and April of each year, an agenda 
of proposed regulations that the agency has issued or expects to issue, and 
currently effective rules that are under agency review pursuant to this 
Order. These agendas may be incorporated with the agendas published 
under 5 U.S.C. 602. and must contain at the minimum: 

(1) A summary of the nature of each major rule being considered, the objec- 
tives and legal basis for the issuance of the rule, and an approximate 
schedule for completing action on any major rule for which the agency has 
issued a notice of proposed rulemaking; 

130 



Executive Order 12,291 37 



2) The name and telephone number of a knowledgeable agency official for 
each item on the agenda; and 

(3) A list of existing regulations to be reviewed under the terms of this 
Order, and a brief discussion of each such regulation. 

(b) The Director, subject to the direction of the Task Force, mav. to the 
extent permitted by law: 

(1) Require agencies to provide additional information in an agenda: and 

(2) Require publication of the agenda in any form. 

Sec. 6. The Task Force and Office of Management and Budget. 

(a) To the extent permitted by law. the Director shall have authority, sub- 
ject to the direction of the Task Force, to: 

(1) Designate any proposed or existing rule as a major rule in accordance 
with Section 1(b) of this Order: 

(2) Prepare and promulgate uniform standards for the identification of 
major rules and the development of Regulatory Impact Analyses: 

(3) Require an agency to obtain and evaluate, in connection with a regula- 
tion, any additional relevant data from any appropriate source: 

(4) Waive the requirements of Sections 3. 4. or 7 of this Order with respect 
to any proposed or existing major rule: 

(5) Identify duplicative, overlapping and conflicting rules, existing or pro- 
posed, and existing or proposed rules that are inconsistent with the policies 
underlying statutes governing agencies other than the issuing agency or 
with the purposes of this Order, and. in each such case, require appropriate 
interagency consultation to minimize or eliminate such duplication, overlap, 
or conflict; 

(6) Develop procedures for estimating the annual benefits and costs of 
agency regulations, on both an aggregate and economic or industrial sector 
basis, for purposes of compiling a regulatory budget: 

(7) In consultation with interested agencies, prepare for consideration by 
the President recommendations for changes in the agencies' statutes: and 

(8) Monitor agency compliance with the requirements of this Order and 
advise the President with respect to such compliance. 

(b) The Director, subject to the direction of the Task Force, is authorized to 
establish procedures for the performance of all functions vested in the Di- 
rector by this Order. The Director shall take appropriate steps to coordinate 
the implementation of the analysis, transmittal, review, and clearance pro- 
visions of this Order with the authorities and requirements provided for or 
imposed upon the Director and agencies under the Regulatory Flexibility 
Act. 5 U.S.C. 601 et seq.. and the Paperwork Reduction Plan Act of 1980. 44 
U.S.C. 3501 et seq. 

Sec. 7. Pending Regulations. 

(a) To the extent necessary to permit reconsideration in accordance with 

this Order, agencies shall, except as provided in Section 8 of this Order. 

•spend or postpone the effective dates of all major rules that they have 

131 



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38 Administrative Procedure Act Appendix 



promulgated in final form as of the date of this Order, but that have not yet 
become effective, excluding: 

(1) Major rules that cannot legally be postponed or suspended; 

(2) Major rules that, for good cause, ought to become effective as final rules 
without reconsideration. Agencies shall prepare, in accordance with Section 
3 of this Order, a final Regulatory Impact Analysis for each major rule that 
they suspend or postpone. 

(b) Agencies shall report to the Director no later than 15 days prior to the 
effective date of any rule that the agency has promulgated m final form as 
of the date of this Order, and that has not yet become effective, and that 
will not be reconsidered under subsection (a) of this Section: 

(1) That the rule is excepted from reconsideration under subsection (a), in- 
cluding a brief statement of the legal or other reasons for that determma- 
tion; or 

(2) That the rule is not a major rule. 

(c) The Director, subject to the direction of the Task Force, is authorized, to 
the extent permitted by law. to: 

(1) Require reconsideration, in accordance with this Order, of any major 
rule that an agency has issued m final form as of the date of this Order and 
that has not become effective; and 

(2) Designate a rule that an agency has issued in final form as of the date 
of this Order and that has not yet become effective as a major rule in ac- 
cordance with Section 1(b) of this Order. 

(d) Agencies may. in accordance with the Administrative Procedure Act 
and other applicable statutes, permit major rules that they have issued in 
final form as of the date of this Order, and that have not yet become effec- 
tive, to take effect as interim rules while they are being reconsidered in ac- 
cordance with this Order, provided that, agencies shall report to the Direc- 
tor, no later than 15 days before any such rule is proposed to take effect as 
an interim rule, that the rule should appropriately take effect as an interim 
rule while the rule is under reconsideration. 

(e) Except as provided in Section 8 of this Order, agencies shall, to the 
extent permitted by law. refrain from promulgating as a final rule any pro- 
posed major rule that has been published or issued as of the date of this 
Order until a final Regulatory Impact Analysis, in accordance with Section 
3 of this Order, has been prepared for the proposed major rule. 

(f) Agencies shall report to the Director, no later than 30 days prior to pro- 
mulgating as a final rule any proposed rule that the agency has published 
or issued as of the date of this Order and that has not been considered 
under the terms of this Order: 

(1) That the rule cannot legally be considered in accordance with this 
Order, together with a brief explanation of the legal reasons barring such 
consideration; or 

(2) That the rule is not a major rule, in which case the agency shall submit 
to the Director a copy of the proposed rule. 

132 



Executive Order 1 2,29 1 39 




(g) The Director, subject to the direction of the Task Force, is authorized, to 
the extent permitted by law, to: 

(1) Require consideration, in accordance with this Order, of any proposed 
major rule that the agency has published or issued as of the date of this 
Order: and 

(2) Designate a proposed rule that an agency has published or issued as of 
the date of this Order, as a maior rule in accordance with Section l|b) of 
this Order. 

(h) The Director shall be deemed to have determined that an agency's 
report to the Director under subsections (b). (d). or (fl of this Section is con- 
sistent with the purposes of this Order, unless the Director .idvises the 
agency to the contrary; 

(1) Within 15 days of its report, in the case of any report under subsections 
(b) or (d); or 

(2) Within 30 days of its report, in the case of any report under subsection (fl. 

(i) This Section does not supersede the Presidents Memorandum of January 
29. 1981. entitled "Postponement of Pending Regulations", which shall 
remain in effect until March 30. 1981. 

(j] In complying with this Section, agencies shall comply with all applicable 
provisions of the Administrative Procedure Act. and with any other proce- 
dural requirements made applicable to the agencies by other statutes. 

Sec. 8. Exemptions. 

(a) The procedures prescribed by this Order shall not apply to: 

(1) Any regulation that responds to an emergency situation. provnU'd that. 
any such regulation shall be reported to the Director as soon as is practica- 
ble, the agency shall publish in the Federal Register a statement of the rea- 
sons why it is impracticable for the agency to follow the procedures of this 
Order with respect to such a rule, and the agenc\ shall prepare and trans- 
mit as soon as is practicable a Regulatory Impact Analysis of anv such 
major rule: and 

(2) Any regulation for which consideration or reconsideration under the 
terms of this Order would conflict with deadlines imposed b\ statute or by 
judicial order, provided that, any such regulation shall be reported to the 
Director together with a brief explanation of the conflict, the agencv shall 
publish in the Federal Register a statement of the reasons wh\ it is imprac- 
ticable for the agency to follow the procedures of this Order with respect to 
such a rule, and the agency, in consultation with the Director shall adhere 
to the requirements of this Order to the extent permitted by statutorx or 
judicial deadlines. 

(b) The Director, subject to the direction of the Task Force. md\. in accord- 
ance with the purposes of this Order, exempt an\ class or cateporv of regu- 
lations from any or all requirements of this Order 

Sec. 9. Judicial Review This Order is intended only to improve the internal 
management of the Federal government, and is not intended to create an\ 
right or benefit, substantive or procedural, enforceable at law b> a party 



133 



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40 Administrative Procedure Act Appendix 



against the United States, its agencies, its officers or any person. The deter- 
minations made by agencies under Section 4 of this Order, and any Regula- 
tory Impact Analyses for any rule, shall be made part of the whole record 
of agency action in connection with the rule. 

Sec. 10. Revocations. Executive Orders No. 12044. as amended, and No. 
12174 are revoked. 



RONALD REAGAN 



THE WHITE HOUSE. 
February 17. 1981. 



134 



Executive Order 1 2,498 4 1 



Executive Order 12,498 
REGULATORY PLANNING PROCESS 

21 Weekly Comp. Pres. Doc. 11 (Jan. 7, 1985) 



Regulatory Planning Process 

Executive Order 12498 January 4, 1985 

By the authority vested in me as Presi- 
dent by the Constitution and laws of the 
United States of America, and in order to 
create a coordinated process for developing 
on an annual basis the Administration's 
Regulatory Program, establish Administra- 
tion regulator) priorities, increase the ac- 
countability of agency heads for the regula- 
tory actions of their agencies, provide for 
Presidential oversight of the regulatory 
process, reduce the burdens of existing and 
future regulations, minimize duplication 
and conflict of regulations, and enhance 
public and Congressional understanding of 
the Administration's regulatory objectives, 
it is hereb> ordered as follows: 

Section I. General Requirements (a) 
There is herebv established a regulatory 
planning process by which the Administra- 
tion will develop and publish a Regulatory 
Program for each year. To implement this 
process, each Executive agency subject to 
Executive Order No. 12291 shall submit to 
the Director of the Office of Management 



D 



42 



Administrative Procedure Act Appendix 



and Budget (OMB) each year, starting in 
1985. a statement of its regulatory policies, 
goals, and objectives for the coming year 
and information concerning all significant 
regulatory actions underway or planned; 
however, the Director may exempt from 
this Order such agencies or activities as the 
Director may deem appropriate in order to 
achieve the effective implementation of this 
Order 

(b) The head of each Executive agency 
subject to this Order shall ensure that all 
regulatory actions are consistent with the 
goals of the agency and of the Administra- 
tion, and will be appropriately implement- 
ed. 

(c) This program is intended to comple- 
ment the existing regulatory planning and 
review procedures of agencies and the Ex- 
ecutive branch, including the procedures 
established by Executive Order No. 12291. 

(d) To assure consistency with the goals of 
the Administration, the head of each 
agency subject to this Order shall adhere to 
the regulatory principles stated in Section 2 
of Executive Order No. 12291, including 
those elaborated by the regulatory policy 
guidelines set forth in the August 11, 1983, 
Report of the Presidential Task Force on 
Regulatory Relief, "Reagan Administration 
Regulatory Achievements." 

Sec. 2. Agency Submission of Draft Regu- 
latory Program, (a) The head of each 
agency shall submit to the Director an over- 
view of the agency's regulatory policies, 
goals, and objectives for the program year 
and such information concerning all signifi- 
cant regulatory actions of the agency, 
planned or underway, including actions 
taken to consider whether to initiate rule- 
making; requests for public comment; and 
the development of documents that may in- 
fluence, anticipate, or could lead to the 
commencement of rulemaking proceedings 
at a later date, as the Director deems neces- 
sary to develop the Administration's Regula- 
tory Program. This submission shall consti- 
tute the agency's draft regulatory program. 
The draft regulatory program shall be sub- 
mitted to the Director each year, on a date 
to be specified by the Director, and shall 
cover the period from April I through 
March .31 of the following year. 

(b) The overview portion of the agency's 
submi!>sion should discuss the agency's 



broad regulatory purposes, explain how 
they are consistent with the Administra- 
tion's regulatory principles, and include a 
discussion of the significant regulatory ac- 
tions, as defined by the Director, that it will 
take. The overview should specifically dis- 
cuss the significant regulatory actions of the 
agency to revise or rescind existing rules. 

(c) Each agency head shall categorize and 
describe the regulatory actions described in 
subsection (a) in such format as the Director 
shall specify and provide such additional m- 
formation as the Director may request; 
however, the Director shall, by Bulletin or 
Circular, exempt from the requirements of 
this Order any class or category of regula- 
tory action that the Director determines is 
not necessary to review in order to achieve 
the effective implementation of the pro- 
gram. 

Sec. 3. Review, Compilation, and Publica- 
tion of the Administration's Regulatory 
Program, (a) In reviewing each agency's 
draft regulatory program, the Director shall 
(i) consider the consistency of the draft reg- 
ulatory program with the Administration's 
policies and priorities and the draft regula- 
tory programs submitted by other agencies; 
and (ii) identify such further regulatory or 
deregulatory actions as may. in his view, be 
necessary in order to achieve such consist- 
ency. In the event of disagreement over the 
content of the agency's draft regulatory 
program, the agency head or the Director 
may raise issues for further review by the 
President or by such appropriate Cabinet 
Council or other forum as the President 
may designate. 

(b) Following the conclusion of the 
review process established by subsection (a), 
each agency head shall submit to the Direc- 
tor, by a date to be specified by the Direc- 
tor, the agency's final regulatory plan for 
compilation and publication as the Adminis- 
tration's Regulatory Program for that year. 
The Director shall circulate a draft of the 
Administration's Regulatory Program for 
agency comment, review, and interagency 
consideration, if necessary, before publica- 
tion. 

(c) After development of the Administra- 
tion's Regulatory Program for the year, if 
the agency head proposes to take a regula- 
tory action subject to the provisions of Sec- 



12 



Executive Order 12,498 43 



B 



tion 2 and not previously submitted for 
review under this process, or if the agency 
head proposes to take a regulatory action 
that is materially different from the action 
described in the agency's final Regulatory 
Program, the agency head shall immediate- 
ly advise the Director and submit the action 
to the Director for review in such format as 
the Director may specify. Elxcept in the 
case of emergency situations, as defined by 
the Director, or statutory or judicial dead- 
lines, the agency head shall refrain from 
takmg the proposed regulatory action until 
the review of this submission by the Direc- 
tor is completed. As to those regulatory ac- 
tions not also subject to Executive Order 
No. 12291. the Director shall be deemed to 
have concluded that the proposal is consist- 
ent with the purposes of this Order, unless 
he notifies the agency head to the contrary 
within 10 days of its submission. As to those 
regulatory actions subject to Executive 
Order No. 12291, the Directors review 
shall be governed by the provisions of Sec- 
tion 3<e) of that Order. 

(d) Absent unusual circumstances, such as 
new statutory or judicial requirements or 
unanticipated emergency situations, the Di- 
rector may. to the extent permitted by law, 
return for reconsideration any rule submit- 
ted for review under Elxecutive Order No. 
12291 that would be subject to Section 2 
but was not included in the agency's final 
Regulatory Program for that year, or any 
other significant regulatory action that is 
materially different from those described in 
the Administration's Regulatory Program 
for that year. 

Sec. 4. Office of Management and 
Budget The Director of the Office of Man- 
agement and Budget is authorized, to the 
extent permitted by law, to take such ac- 
tions as may be necessary to carry out the 
provisions of this Order. 

Sec. 5. Judicial Remew. This Order is in- 
tended only to improve the internal man- 
agement of the Federal government, and is 
not intended to create any right or benefit, 
substantive or procedural, enforceable at 
law by a party against the United States, its 
agencies, its officers or any person 

Ronald Reagan 
The White House, 
January 4. 1985. 

[Filed with the Office of the Federal Regis- 
Ur. 4:05 p.m., January 4. J98S] 



President's Memorandum 45 



PRESTOENTS MEMORANDUM FOR THE HEADS OP 
EXECUTTVE DEPARTMENTS AND AGENCIES 

21 Weekly Comp. Pres. Doc. 13 (Jan. 7, 1985) 



Subject: Development of Administration's 
Regulatory Program 

With your help and active support, this 
Administration has substantially reduced 
the burden and mtrusiveness of Federal 
regulatory programs. In the past three 
years, we have eliminated many needless 
rules, revised ill-conceived ones, and held 
the number of new rules to the minimum 
necessary. The policies and procedures of 
Executive Order No. 12291 have imposed 
long needed discipline on the rulemaking 
process. As a result. Federal paperwork and 
the size of the Federal Register have de- 
clined for four consecutive years— for the 
first time ever. Our accomplishments so far 
have been substantial, and we can take 
pride in them. 

Much more can and should be done, how- 
ever. Regulation has become one of the 
most important and costly activities of gov- 
ernment, yet it is managed far less system- 
atically than direct government spending. 
Several statutes and Executive Order No. 
12291 establish procedures for agency rule- 
making, but this is only the final stage of 
the regulatory process. Developing a gov- 
ernment rule often involves years of stud- 
ies, hearings, and intermediate decisions 
before even a proposed rule is issued for 
public comment. Frequently, senior agency 
officials are involved only after these earlier 
activities have greatly narrowed the options 
for final action and precluded effective Ad- 
ministration policy review. 

Today, 1 have signed an Elxecutive Order 
to establish a regulatory planning process 
by which we will develop and publish the 
Administration's Regulatory Program for 
each year. Under this process, it will be the 
personal responsibility of the head of each 
agency to determine — at the beginning of 
the regulator>- process, not at the end — 
whether a given regulatory venture is con- 
sistent with the goals of the Administration 
and whether agency resources should be 
committed to it. Each agency head will thus 

13 



1^ 



B 



46 



Administrative Procedure Act Appendix 



be accountable for the management of the 
regulatory process, to ensure that policy op- 
tions are not narrowed prematurely and 
that each significant regulatory proposal 
will be considered in relation to others. 

To do this, I am requesting each regula- 
tory agency to draft its proposed regulatory 
policies at the beginning of each year and 
to set forth a statement of priority regula- 
tory activities, including prerulemaking ac- 
tions, that constitute the agency's regula- 
tory program for the year. This document 
should explain how each new activity will 
carry out the regulatory policies of this Ad- 
ministration and specify the agency's plan 
for reviewing and revising existing regula- 
tory programs to bring them into accord 
with Administration policies. 

After approval by the head of the agency, 
the agency's draft regulatory program 
should be submitted for review by the 
Office of Management and Budget. This 
review should focus on consistency with 
general Administration policy, and with the 
draft regulatory programs submitted by 
other agencies. The Office of Management 
and Budget will circulate a draft of the Ad- 
ministration's Regulatory Program for 
agency comment, review, and interagency 
consideration if necessary before the docu- 
ment is put in final form for publication. 
Issues may be raised for further review by a 
Cabinet Council or by me or by such other 
group as I may designate. This review will 
not interfere with the exercise of authority 
committed by statute to heads of agencies. 

The final regulatory programs of all agen- 
cies will be published by the Office of Man- 
agement and Budget in May as the Admin- 
istration's Regulatory Program for the 
twelve-month period beginning April 1, 
1985. During the year, this document will 
be used as a basis for reviews of individual 
rules under Executive Order No. 12291. At 
the end of the year, it should be used to 
assess the agency's performance and to pre- 
pare the next year's program. 

I am directing the Director of the Office 
of Management and Budget to implement 
this regulatory review process immediately 
and to establish the procedures under 
which these documents will be submitted to 



the Director and reviewed. For their first 
submission, agencies shall submit their draft 
regulatory program to the Director on the 
date specified by him. The Director will 
prepare for my consideration the goals and 
priorities for all agencies in a manner simi- 
lar to the identification of significant issues 
in the fiscal budgetary process. 

1 am convinced that this process will 
result in substantial improvements in Fed- 
eral regulatory policy. It will help ensure 
that each major step in the process of rule 
development is consistent with Administra- 
tion policy. It will enable agency heads to 
manage agency regulatory actions more ef- 
fectively, at the same time that it enables 
the President to hold agency heads more 
closely accountable for implementing Ad- 
ministration policy. 

While ambitious, this program will build 
on our earlier efforts that have proven suc- 
cessful — the Executive Order No. 12291 
review process, the reviews of inherited 
rules by the Task Force on Regulatory 
Relief, and the annual "paperwork budget" 
process. 

1 am confident that your wholehearted 
support will make this next stage of our 
regulatory reform program equally success- 
ful. 

Ronald Reagan 



14 



Regulatory Impact Analysis Guidance 



47 



B 



Office of Management and Budget 
REGULATORY IMPACT ANALYSIS GUIDANCE 

Regulatory Program of the United States Government-- 1990 

653 (1990) 



APPE^a)IX V 

Regulatory Impact Analysis Guidance 



A R«gulatoi-\- Impact Analysis (RIA) should dcmon- 
straK thai a pn)posed regulaion action satisfies the 
requirements of Section 2 of Kxecutivc Order No 
122S1. To do so. It siiuuld show that: 

• There is adequate information concerning the 
need for and consequences of tiie proposed aaion; 

• The potential benefits to society outweigh the 
potential costs; and 

• Of all the alternative approaches to the given 
regulatory objective, the proposed action will 
maximize net benefits to society. 

The fundamental test of a satisfactory RIA is 
whether it enables independent reviewers to make an 
informed judgment that the objectives of Executive 
Order No. 12291 are satisfied. An RIA that includes 
•11 the elements described below is likely to fulfill 
this requirement. Although variations consistent with 
the spirit and intent of the Executive Order may be 
warranted for some rules, most RIAs should include 
these elements. 

The guidance in this document is not in the form of 
a mechanistic blueprint, for a good RIA cannot be 
written according to a formula. Competent profes- 
sional judgment is indispensable for the preparation 
of a high-quality analysis. Different regulations may 
call for very different emphases in analysis. For one 
proposed regulation, the crucial issue may be the 
question of whether a market failure exists, and 
much of the analysis may need to be devoted to that 
key question. In another case, the existence of a 
market failure may be obvious from the outset, but 
extensive analysis might be necessary to estimate the 
ma^itude of benefits to be expected from proposed 
regulatory alternatives. The amount of analysis 
(whether scientific, statistical, or economic) that a 
particular issue requires depends on how cruaal that 
issue is to determine the best alternative and on the 
complexity of the issue 

Regulatory analysis inevitably involves uncertain- 
ties and requires informed professional judgments. 
Whenever an agency has questions about such issues 
as the appropriate analytical techniques to use or the 
alternatives that should be considered, it should con- 
sult with the Office of Management and Budget as 
early in the analysis suge as possible. 

This document is written primarily in terms of 
proposed regulatory changes However, it is equally 
applicable to the review of existing regulations In the 
Istter case, the regulation under review should be 



conipaiod to a baseline ca.se of no regulation and to 
reasonatile alternutivcs. 

Elements of a Regulatory Impact Analysis 

Preliminary and final Regulatory Impact Analyses 
of major rules should contain five elements. They are: 

(1) a statement of the potential need for the proposal. 

(2) an examination of alternative approaches, (3) an 
analysis of benefits and costs, (4) the rationale for 
choosing the proposed regulatory action, and (5) a 
statement of sututory authority. These elemenU are 
explained in Sections I-V below. 

I. STATEMENT OF POTENTIAL NEED FOR 
THE PROPOSAL 

In order to establish the potential need for the 
proposal, the analysis should demonstrate that (ai 
market failure exists that is (b) not adequately re- 
solved by measures other than Federal regulation. 
A. Market Failure 

The analysis should determine whether there exists 
a market failure that is likely to be significant. Once 
such market failure has been identified, the analysis 
should show how adequately the regulatory alterna- 
tives to be considered address the specified market 
failure The three major types of market failure are 
externality, natural monopoly, and inadequate infor- 
mation. 

1. Externality. An externality occurs when one 
party's actions impose uncompensated benefits or 
costs on another outside the niarketplace. Environ- 
mental problems are a classic case of externality 
Another example is the case of common property 
resources that may become congested or overused, 
such as fisheries or the broadcast spectrum. A third 
example is a 'public good,* such as defense or scien- 
tific research, whose distinguishing characteristic is 
that it IS inefTicient, or impossible, to exclude individ- 
uals from its benefits 

2 Natural monopoly Natural monopoly exists 
where a market can be served at lowest cost only if 
production is limited to a single producer. Local 
telephone, gas. and clectncity services are examples 

3 Inadequate information The optimum, or ideal, 
level of information is not necessanly the maximuir 
possible amount, because information, like other 
goods, should not be produced when the costs of doing 
so exceed the benefits The free market does noi 

653 



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necessarily supply an optimal level of information, 
because information, once generated, can be dis- 
seminated at little or no marginal cost, and because 
it is commonly infeasible to exclude nonpayers from 
reaping benefits from the provision of information by 
others. Where market failure due to inadequate in- 
formation is the rationale for government inter- 
vention, a regulatory action to improve the availabil- 
ity of information will ordinarily be the preferred 
alternative. 

The current state of knowledge about the econom- 
ics of information is not highly developed. Therefore, 
regulatory intervention to address an information 
problem should only be undertaken where there is 
substantial reason to believe that private incentives 
to provide information are seriously inadequate and 
that the specific regulatory intervention proposed will 
provide net benefits for society. 

In many circumstances, the availability of informa- 
tion, while perhaps not optimal, is reasonably ade- 
quate, so that attempts to regulate information are as 
likely to make things worse as to make them better. 
Information about a particular characteristic of a 
product, for example, would be reasonably adequate if 
buyers could determine the existence of the charac- 
teristic by inspection of the product before purchase 
or (in the case of a frequently purchased product) by 
use of the product. Even if the characteristic could 
not be determined by buyers, government interven- 
tion would not be warranted where sellers have 
incentives to reveal the existence of the characteristic 
to buyers. Sellers will have substantial incentives to 
supply information about any characteristic that is 
important to buyers and valued positively by them, 
particularly if the level of the characteristic varies 
between the products of one seller and another In 
these circumstances, sellers whose products rank 
highly in the valued characteristic can increase their 
sales by informing buyers of the superiority of their 
products. If the level of the characteristic does not 
vary between the products of one seller and another, 
individual sellers have less incentive to inform buyers 
about the characteristic. Even so, the incentives of 
individual sellers or of a trade association to supply 
information may be substantial. 

Sellers are least likely to supply adequate informa- 
tion about a particular characteristic of their product 
where the characteristic is negatively valued by con- 
sumers and the level of the characterstic does not 
vary between the products of one seller and those of 
another (e.g., cholesterol in eggs). Even in such cir- 
cumstances, substantial information about the char- 
acteristic may be available to buyers. For example, 
sellers of rival products may supply the information 
(e.g., while sellers of butter may have no incentive to 



tell buyers about cholesterol in butter and its possible 
consequences, sellers of marganne do have such an 
incentive). Where the negative characteristic involves 
a health or safety hazard, the threat of future prod- 
uct liability lawsuits may give sellers adequate incen- 
tives to reveal information about the potential haz- 
ard. News media, consumer groups, public health 
agencies, and similar services may supply informa- 
tion not supplied by sellers. In summary, while it is 
(Mssible to identify situations in which market failure 
due to inadequate information is more likely to war- 
rant regulatory intervention, each situation must be 
examined on a case-by-case basis. 

There should be a presumption against the need for 
certain types of regulatory actions, except in special 
circumstances. A particularly demanding burden of 
proof is required to demonstrate the potential need 
for any of the following types of regulations: 

• Price controls in competitive markets 

• (Controls on production or sales in competitive 
markets 

• Mandatory uniform quality standards for goods or 
services, unless they have hidden safety or other 
defects and the problem cannot be adequately 
dealt with by voluntary standards or information 
disclosing the hazard to potential buyers or users 

• Controls on entry into employment or production, 
except (a) where indispensable to protect health 
and safety (e.g., FAA tests for commercial pilots) 
or (b) to manage the use of common property 
resources (e.g., fisheries, airwaves. Federal lands, 
and offshore areas). 

B. Alternatives to Federal Regulation 

Even where a market failure exists, there may be 
no need for Federal regulatory intervention if other 
means of dealing with the market failure resolve the 
problem adequately or better than the proposed Fed- 
eral regulation would. Among the alternative means 
that may be apphcable are the judicial system 
(particularly liability cases to deal with health and 
safety), antitrust enforcement, and workers" compen- 
sation systems. 

An important alternative that may often be rele- 
vant is regulation at the State or local level. In 
determining whether there exists a potential need for 
a proposed Federal regulation, the analysis should 
examine whether regulation at the Federal level is 
more appropriate than regulation at the State or local 
level. This analysis may support regulation at the 
Federal level where rights of national citizenship 
(such as legal equality among the races) or considera- 
tions of interstate commerce are involved. If inter- 
state commerce is involved the analysis should at- 
tempt to determine whether the burdens on 



Regulatory Impact Analysis Guidance 



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interstate commerce arising fmm difTcrent State and 
local regulations are so prcat that they outweifjh the 
advantages of diversity and local political choice. In 
some cases, the nature of the market failure may 
itself suggest the most appropriate governmcnlnl 
level of regulation. For example, pollution that spills 
across state lines (such as acid ram whose precursors 
are transported widely in the atmosphere) is probably 
best controlled by Federal regulation, while localized 
pollution (such as garbage truck noise) is probably 
more efficiently handled by local government regula- 
tion. 

In general, because demands among localities for 
different governmental services differ and because 
competition among governmental units for taxpayers 
and citizens may encourage efficient regulation, the 
smallest unit of government capable of correcting the 
market failure should be chosen. This must, however, 
be balanced against the possibility of higher costs 
because national firms would be required to comply 
with more than one set of regulations and because 
administering similar regulations in more than one 
governmental unit involves some costs of duplication. 
Thus, some analysis may be necessary to determine 
which level of government can most efficiently regu- 
late a specific market failure. 

If the analysis does suggest a potential need for a 
Federal action, it should also consider alternatives of 
nonregulatory Federal measures. For example, as an 
alternative to requiring an action or the use of a 
particular product, it may be more efficient to subsi- 
dize it. Similarly, a fee or charge may be a preferable 
alternative to banning or restricting a product or 
action. An example would be an effiuent discharge 
fee, which has been recommended as an efficient way 
to limit pollution, because it causes pollution sources 
%vith different marginal costs of abatement to control 
efnuents in an efficient manner. In addition, legisla- 
tive measures that make use of economic incentives, 
such as changes in insurance provisions or changes in 
property rights, should be considered. 

IL AN EXAMINATION OF ALTERNATIVE 
APPROACHES 

The RIA should show that the agency has consid- 
ered the most important alternative approaches to 
the problem and must provide the agency's reasoning 
for selecting the proposed regulatory change over 
such alternatives. Ordinarily, it will be possible to 
eliminate some alternatives by a preliminary analy- 
sis, leaving a manageable number of alternatives to 
be evaluated by quantitative benefit-cost analysis 
according to the principles to be described in Section 
III. The number and choice of alternatives to be 



selected for detailed t)encfit<ost analysis is unavoid- 
ably a matter of judgment. There must be some 
balance between thoroughness of analysis and prac- 
tical limits to the agency's capacity to carry out 
analysis. 

Alternative regulatory actions that should be ex- 
plored include the following: 

1. More performance-oriented standards for health, 
safety, and environmental regulations. Performance 
standards are generally to be preferred to engineer- 
ing or design standards because they allow the regu- 
lated parties to achieve the regulator}' objective in 
the most cost-effective way. In general, a performance 
standard should be preferred wherever that perfor- 
mance can be measured or reasonably imputed. Per- 
formance standards should also be applied as broadly 
as possible without creating too much variation in 
regxilatory benefits; for example, by setting emission 
standards on a plant-wide or firm-wide basis rather 
than source by source. It is misleading and inappro- 
priate, however, to characterize a standard as a 
performance standard if it is set so that there is only 
one feasible way to meet it; as a practical matter, 
such a standard is a design standard. 

2. Different requirements for different segments of 
the regulated population. For example, there might be 
different requirements for large and small firms. If 
such a differentiation is made, it should be based on 
perceptible differences in the costs of compliance or in 
the benefits to be expected from compliance. For 
example, some worker safety measures may exhibit 
economies of scale, that is, lower costs per worker 
protected in large firms than in small firms. A heav- 
ier burden should not be placed on one segment of 
the regiilated population on the grounds that it is 
better able to afford the higher cost; this is a sure 
formula for loading disproportionate costs on the 
most productive sectors of the economy. 

3. Alternative levels of stringency. In general, both 
the benefits and costs associated with a regulation 
will increase with the level of stringency (although 
costs will eventually increase more rapidly than bene- 
fits). It is important to consider alternative levels of 
stringency to better understand the relationship 
between stringency and benefits and costs. This 
approach will increase the information available to 
the decisionmaker on the option that maximizes net 
benefits. 

4. Alternative effective dates of compliance. The 
timing of a regulation may also have an important 
effect on its net benefits. For example, costs of a 
regulation may vary substantially over different com- 
pliance dates for an industry that requires a year or 
more to plan its production runs efficiently. In this 
instance, a regulation whose requirements provide 



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sufficient lead time is likely to achieve its goals at a 
much lower overall cost than a regulation that is 
cfTective immediately. 

5. Alternative methods of ensuring compliance. 
Compliance alternatives include the appropriate en- 
tity (local, State, or Federal) enforcing compliance, 
whether compliance is enforced by on-site inspection 
or periodic reporting, and structuring compliance 
penalties so that they provide the most appropriate 
incentives. 

6. Informational measures. Measures to improve 
the availability of information include government 
establishment of a standardized testing and rating 
system (the use of which could be made mandatory or 
left voluntary), mandatory disclosure requirements 
(e.g., by advertising, labeling, or enclosures), and 
government provision of information (e.g., by govern- 
ment publications, telephone hot-lines, or public in- 
terest broadcast announcements). If intervention is 
necessary to address a market failure arising from 
inadequate information, informational remedies will 
generally be the preferred approaches. As an alterna- 
tive to a mandatory standard, a regulatory measure 
to improve the availability of information has the 
advantage of being a more market-oriented approach. 
Thus, providing consumers information about con- 
cealed characteristics of consumer products gives con- 
sumers a greater choice than banning these products 
(for example, consumers are likely to benefit more 
from information on energy efficiency than from a 
prohibition on sale of appliances or automobiles fall- 
ing below a specified standard of energy efficiency). 

Except for prohibiting indisputably false state- 
ments (whose banning can be presumed beneficial), 
specific informational measures must be evaluated in 
terms of their benefits and costs. Paradoxically, the 
cxirrent state of knowledge does not generally permit 
the benefits and costs of informational remedies to be 
measured very accurately. Nonetheless, it is essential 
to consider carefully the costs and benefits of alterna- 
tive informational measures, even if they cannot be 
quantified very precisely. Some effects of informa- 
tional measures can easily be overlooked. For exam- 
ple, the costs of a mandatory disclosure requirement 
for a consumer product include not only the obvious 
cost of gathering and communicating the required 
information, but also the loss of any net benefits of 
information displaced by the mandated information, 
the cost of any inaccurate consumer interpretation of 
the mandated information, and any inefficiencies 
arising from the incentive that mandatory disclosure 
of a particular characteristic gives to producers to 
overinvest in improving that specific characteristic of 
their products. 



Where information on the benefits and costs of 
alternative informational measures is insufficient to 
provide a clear choice between them, as will often be 
the case, the least intrusive alternative, sufficient to 
accomplish the regulatory objective, should be chosen. 
For example, it will often be sufficient for government 
to establish a standardized testing and rating system 
without mandating its use. because firms that score 
well according to the system will have ample incen- 
tive to publicize the fact. 

7. More market -oriented approaches. In general, 
alternatives that provide for more market-oriented 
approaches, with the use of economic incentives re- 
placing command-and-control requirements, should 
be explored. Market-oriented alternatives that may 
be considered include fees, subsidies, penalties, 
marketable rights or offsets, changes in liabilities or 
property rights, and required bonds, insurance or 
warranties (in many instances, implementing these 
alternatives will require legislation). 

III. ANALYSIS OF BENEFITS AND COSTS 
A. General Principles 

The preliminary analysis called for by Sections I 
and II should have narrowed the number of alterna- 
tives to be considered by quantitative benefit-cost 
analysis to a workable number Ordinarily, one of the 
alternatives will be to promulgate no regulation at 
all, and this alternative will commonly serve as the 
base from which increments in benefits and costs are 
calculated for the other alternatives. Even if alterna- 
tives such as no regulation are not permissible statu- 
torily, it is often desirable to evaluate the benefits 
and costs of such alternatives to determine if statu- 
tory change would be desirable. Departments and 
agencies bear a similar burden when they perform 
environmental impact statements in which alterna- 
tives that lie outside their statutory authority must 
be considered. 

In some cases, the desirability of specific alterna- 
tives outside the scope of the agency's regulatory 
authority may be determined by use of basic eco- 
nomic concepts in light of the principles enumerated 
in Section I. In other instances, however, only a 
quantitative benefit-cost analysis can resolve the 
question, and such alternatives will need to be in- 
cluded in the analysis of this section. In addition, 
alternative forms of agency regulation will need to be 
evaluated by quantitative benefit-cost analysis. 

1. Evaluation of Alternatives. Except where prohib- 
ited by law, the primary criterion for choice among 
alternatives is expected net benefit (benefits minus 
costs). Other criteria may sometimes produce equiva- 
lent results, but they must be used with care to avoid 



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AIM'KNDIX V 



the potentially serious pitfalls to be explained in Part 
n of this section and in Section IV. Both benefits and 
costs should bo expressed in discounted constant 
dollars Appropnate discountinR prckedures are dis- 
cussed in the following section. 

The distinction between benefits and costs in l)ene- 
fit-cosi analysis is somewhat arbitrary, since a posi- 
tive benefit may be considered a negative cost, and 
vice versa, without affecting the net benefit (benefits 
minus costs) decision criterion. This implies that the 
considerations applicable to benefit estimates also 
apply to costs and vice versa. The different issues are 
considered separately under benefits or costs in Sec- 
tions B and C below according to where they most 
often arise. 

If the proposed regulation is composed of a number 
of distinct provisions, it is important to evaluate the 
benefits and costs of the different provisions sepa- 
rately. The interaction effects between separate provi- 
sions (such that the existence of one provision affects 
the benefits or costs arising from another provision) 
may complicate the analysis but does not eliminate 
the need to examine provisions separately. In such a 
case, the desirability of a specific provision may be 
appraised by determining the net benefits of the 
proposed regulation with and without the provision in 
question. Where the number of provisions is large 
and interaction effects are pervasive, it is obviously 
impractical to analyze all possible combinations of 
provisions m this way. Some judgment must be used 
to select the most significant or suspect provisions for 
such analysiis. 

2. Discounting. The monetary values of benefits 
and costs occurring in different years should be 
discounted to their present values so that they are 
comparable. This is not the same as correcting for 
inflation. An inflation adjustment is made with a 
price index, whereas discounting to present value is 
done with a discount rate. Benefits and costs ex- 
pressed in constant (i.e., unaffected by inflation) dol- 
lars must further be discounted to present values 
before benefits and costs in different years can be 
added together to determine overall net benefits. As 
an equivalent alternative to discounting non- 
monetized benefits, the RIA may use the discount 
rate to annualize (amortize) costs over a period that 
corresponds to the occurrence of the benefits. Regard- 
less of the discounting procedure selected, the RIA 
must contain a schedule indicating when the benefits 
and costs occur. 

Discounting takes account of the fact that resources 
(goods or services) in a given year are worth more 
than identical resources in a later year The underly- 
ing reason for this is that resources can be invested 
so as to return more resources later Partly because 



of this productivity of investniciu, individuals value 
consumption in earlier years higher than consump- 
tion in later years. 

Modern analysis of discounting for public proprams 
stresses the distinction Ix'twecn two rates of return: 

• The before-tax rate, also known as the opportunity 
cost of capital. This is the real rate of return to 
marginal private investments. Estimates of the 
opportunity cost of capital in the U.S. economy 
vary substantially. The 10 percent discount rate 
specified by 0MB Circular A-94 for use in evalu- 
ating government programs is intended to repre- 
sent the opportunity cost of capital. 

• The after-tax rate, also known as the consumption 
rate of interest. This represents the rate at which 
consumers would be willing to exchange present 
for future consumption, that is, the rate at which 
consumers must be compensated for postponing 
their consumption. As with the opportunity cost of 
capital, alternative estimates of the consumption 
rate of interest vary significantly. A rate of 4 
percent is reasonably representative of the range 
of alternative estimates and consistent with a 10 
percent before-tax rate of return. 

The basic concept underlying the academic litera- 
ture on public-sector discounting is that economic 
welfare is ultimately determined by consumption and 
only indirectly by investment. Therefore, the value of 
investment must be measured by the value of the 
subsequent increase in consumption it permits. Any 
effect that a government program has on investment 
must be converted to an equivalent time-stream of 
consumption before being discounted. In practice, this 
results in a complex procedure that uses the before- 
tax and after-tax discount rates, a "shadow price of 
capital," and the impacts of benefits and costs on 
investment. It is recommended that agencies continue 
to use the well-understood procedure of discounting 
by a single rate (as specified by 0MB Circular A-94) 
and. when appropriate, perform additional analysis 
using the more complex shadow-price-of-capital meth- 
odology. 

There are two circumstances when it is important 
to perform sensitivity analysis using the shadow price 
of capital approach: 

(a) Where the costs of the regulation are almost 
entirely current costs borne by consumers. In such 
circumstances, a low rate close to 4 percent is called 
for (This assumes, as is normally the case, that the 
benefits are all in the form of disposable income or 
other benefits directly to individuals.) 

(b) Where some of the costs are capital costs 
financed out of saving and there is a long period 
between the time when most costs are incurred and 
the time when most benefits accrue. In general, the 



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smaller the fraction of costs that are -capital costs 
financed out of saving and the longer the time period 
between costs and benefits, the greater the likehhood 
that the shadow price of capital approach wilt be 
correct 

It is conceptually incorrect to adjust the discount 
rate as a device to account for the uncertainty of 
expected future benefits and costs. This procedure 
will virtually never lead to a correct adijustment of 
benefits and costs. Therefore, risk and uncertainty 
should be dealt with according to the principles in 
Section 3 below and not by changing the discount 
rate. 

3. lyeatment of Risk and Uncertainty. Where uncer- 
tainties exist about important parameters affecting 
the expected benefits or costs of an alternative under 
consideration, it is essential to carry out a sensitivity 
analysis to determine the effect on net benefits of 
plausible variations in the value of the parameters. 
One form of sensitivity analysis involves calculation 
of the "switch-point" value of the parameter under 
examination, that is, the value of the parameter at 
the break-even point at which the net-benefit decision 
criterion switches over from favoring one alternative 
to favoring another. When this break-even point of 
the parameter value is determined, the analysis may 
then consider the probability that the true parameter 
value is above or below the break-even value. For 
example, if the. m^jor uncertainty about a proposed 
regulation were its cost, the analysis could calculate 
how hi^ the cost would need to be in order to reduce 
the net benefit of the proposal to tero. If it is judged 
to be highly unlikely that the actual cost would be 
that high or higher, it may be concluded that the 
choice of the proposed alternative is not sensitive to 
uncertainties about its cost. 

A primary objective of sensitivity analysis is to 
identify where additional analysis may be most 
needed. If the choice of a specific regulatory action is 
sensitive to alternative parameter values that are 
about equally likely to be true, more research to 
better determine the true parameter value could be 
very valuable. 

Wherever parameter estimates are uncertain, for 
either benefits or costs, expected-value estimates 
should be presented. Hypothetical best-case or worst- 
case estimates may be presented as alternatives for 
sensitivity analysis. Where possible, information 
about the probability distribution of the parameter 
estimate should be presented. 

A common situation that arises in estimating both 
benefits and costs is that a number of different 
studies may exist which together provide a range of 
different estimates for a particular parameter. In 
general, it is not appropriate to use the midpoint of 



the range of extreme values provided by the studies. 
Such a technique ignores the information provided by 
all studies except those providing the extreme values, 
which may be the least reliable. The preferred ap- 
proach to deriving an expected-value estimate of a 
particular parameter in this situation would be to 
derive it as a weighted average of the estimates of 
the individual studies, with the weight of each esti- 
mate being based on the reliability (in the best 
judgment of the agency) of the study that produced it. 

Where expected future benefits or costs are un- 
certain, their value to those who receive them may be 
different from their value if they were certain. (Often, 
but not always, a certain future benefit is worth more 
to people than an uncertain future benefit with the 
same expected value.) As noted in the previous 
section, it is incorrect to adjust the discount rate as a 
device to account for the riskiness of future benefits 
or costs. Any allowance for risk should be made by 
adjusting the monetary values (for the year in which 
they occur) of the uncertain benefits and costs so that 
they are expressed in terms of their '^certainty- 
equivalents." 

For an uncertain benefit in futiire year X, the 
certainty-equivalent is the number of certain dollars 
in year X that the uncertain benefit is worth to its 
recipient. For example, suppose that a particular 
regulation reduces the probability of fire in a particu- 
lar type of facility. As part of a benefit-cost analysis 
for this regulation, the dollar value of the expected 
reduction in fire loss would be calculated. The owners 
of the protected facilities place a higher dollar value 
on the risk of a fire than the expected dollar value of 
the loss. This is demonstrated by their willingness-to- 
pay for fire insurance. Therefore, their relative net 
cost (the percentage difference between insurance 
premiums and insurance company claim payments) 
for fire insiu'ance can be used to increase the ex- 
pected dollar value of the reduction in fire loss to its 
certainty-equivalent value. 

In the example of the preceding paragraph, the 
adjustment for risk would involve an increase in the 
value of the benefit, whereas uncertainty of a benefit 
is normally thought to reduce its certainty-equivalent 
value. The reason is that even though this benefit by 
itself is uncertain, it acts to reduce the overall level 
of risk that would prevail in the absence of the 
regulation. This illustrates the important principle 
that what matters is not the variability or riskiness 
of a regulation's net benefits by themselves but the 
regulation's effect on risk and uncertainty overall. 

While an adjustment to account for risk may be 
called for in the fire-nsk example given, a similar 
adjustment for the value of reductions in fatalities 
and ii\)uries would not be appropriate. Assuming that 



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the values of fatalities and injuries have l)cen derived 
hv the wilhnpncss-to-pay methodology recommended 
in Section B 2 below, they would already represent 
the certainty-equivalent value of the uncertain risk. 
Tliis is because the estimated dollar values represent 
the certain dollar amounts that individuals would 
sacrifice to reduce these risks. 

Probably, in most cases, it will not be advisable to 
adjust for risk and uncertainty. As a theoretical 
matter, no adjustment for risk is necessary wherever 
the net benefits are widely dispersed among many 
individuals and are not correlated with disposable 
income And in cases where this does not apply, risk 
may be relatively unimportant or may already be 
taken into account by use of the willingness-to-pay 
methodology. In other cases, there may be no practi- 
cal way to quantify the value of changes in risk. 

4. Assumptions. Where benefit or cost estimates are 
heavily dependent on certain assumptions, it is es- 
sential to make these assumptions explicit and, 
where alternative assumptions are plausible, to carry 
out sensitivity analyses based on plausible alterna- 
tive assumptions. If the decision criterion proves to 
be sensitive to alternative plausible assumptions, this 
may necessitate further research to develop more 
evidence on which of the alternative assumptions is 
the most appropriate. Because the adoption of a 
particular estimation methodology sometimes implies 
major hidden assumptions, it is important to analyze 
estimation methodologies carefully to make hidden 
assumptions explicit. 

5. International Trade Effects. In calculating the 
benefits and costs of a proposed regulatory action, 
generally no explicit distinction needs to be made 
between domestic and foreign resources. If, for 
example, compliance with a proposed regulation re- 
quires the purchase of specific equipment, the oppor- 
tunity cost of that equipment is ordinarily best repre- 
sented by its domestic cost in dollars, regardless of 
whether the equipment is produced domestically or 
imported. The relative value of domestic and foreign 
resources is correctly represented by their respective 
dollar values, as long as the foreign exchange vsdue of 
the dollar is determined by a free exchange market. 
Nonetheless, an awareness of the role of international 
trade may be quite useful for assessing the benefits 
and costs of a proposed regulatory action. For exam- 
ple, the existence of foreign competition usually 
makes the demand curve facing a domestic industry 
more elastic than it would be otherwise. Elasticities 
of demand and supply frequently can significantly 
affect the magnitude of the benefits or costs of a 
regxilation. 

A regulation that discriminates unjustifiably 
against foreign exporters is a form of economic pro- 



tectionism. The economic loss to the U.S. due to the 
fact that protectionism is economically inefficient will 
be reflected in the net benefit estimate of any prop- 
erly conducted benefit-cost analysis. However, a bene- 
fit-cost analysis will generally not be able to measure 
the potential U.S. loss from the threat of future 
retaliation by foreign governments. Therefore, speoal 
attention should be given to any possibility that a 
regulation would unjustifiably discriminate between 
domestic and foreign producers and consumers — both 
discrimination against foreigners and discrimination 
in favor of foreigners. 

The fact that a regulation has a differential eiTect 
on foreigners as compared to Americans does not 
necessarily constitute discrimination. If, for example, 
an automobile safety standard could be complied with 
less expensively by large cars than by small cars, 
such a standard would be more favorable to American 
car producers, who produce relatively more large cars 
compared to the fleet mix of foreign producers. None- 
theless, such a differential effect would not be dis- 
criminatory if the difference in compliance cost 
between large and small cars was necessary to 
achieve legitimate regulatory objectives in the most 
efficient way. 

If a regulation has an adverse differential effect on 
foreign producers or consumers relative to domestic 
producers and consumers that is not necessary to 
realize regulatory goals efficiently, then a discrimina- 
tory effect on foreign trade exists. The RIA should 
identify any substantial differential effect on interna- 
tional trade and explain why it is necessary to 
achieve legitimate regulatory goals in the most ef5- 
cient way. One means for reducing the Ukelihood of 
international discrimination would be for a U.S. prod- 
uct standard for an internationally traded good to be 
based on an international standard, wherever an 
international standard exists and is compatible with 
the health, safety, or environmental needs of the U.S. 
International harmonization can be beneficial for reg- 
ulations directly setting standards for internationally 
traded goods or services. For example, it would be 
appropriate to consider international harmonization 
in setting safety standards for automobiles. There is 
no similar advantage to international harmonization 
where a regulation does not directly affect the quality 
of an internationally traded good or service, even if it 
indirectly affects its costs (e.g.. environmental con- 
trols for automobile plants). 

6. Distributional Effects. Those who bear the costs 
of a regulation and those who enjoy its benefits oflen 
are not the same persons. Benefits and costs of 
regiilation may also be distributed unevenly over 
time, perhaps spanning several generations. There is 
no generally accepted way to monetize potential 



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distributional effects. Attempts to incorporate dis- 
tributional concerns in benefit-cost analysis require 
the establishment of unequal weights for different 
groups in society. Because positive economics treats 
equally the willingness-to-pay of all individuals, any 
alternative weighting would undermine the objective 
character of the analysis. Policymakers may wish, 
however, to take account of the distributional effects 
of various regulatory alternatives. Therefore, where 
there are potentially important differences between 
those who stand to gain and those who stand to lose 
under alternative regulatory options, the RIA should 
identify these groups and indicate the nature of the 
differential effects. The RIA should also present infor- 
mation on the streams of benefits and costs over time 
as well as present value estimates, particularly 
where intergenerational effects are concerned. 

B. Benefit Estimates 

The RIA should state the beneficial effects of the 
proposed regulatory change and its principal alterna- 
tives. In each case, there should be an explanation of 
the mechanism by which the proposed action is ex- 
pected to yield the anticipated benefits. An attempt 
should be made to quantify all potential real incre- 
mental benefits to society in monetary terms to the 
maximum extent possible. A schedule of monetized 
benefits should be included that would show the type 
of benefit and when it would accrue; the numbers in 
this table should be expressed in constant, undis- 
counted dollars. Any expected incremental benefits 
that cannot be monetized should be explained. 

The RIA should identify and explain in detail the 
data or studies on which benefit estimates are based. 
Where benefit estimates are derived from a statistical 
study, the RIA must provide sufficient information so 
that an independent observer can determine the rep- 
resentativeness of the sample, whether it was extrap- 
olated from properly in developing aggregate esti- 
mates, and whether the results are statistically 
significant. 

For regxjJations addressing health and safety risks, 
the calculation of potential benefits should derive 
from the agency's estimate of the mean expected 
value of the reduction in risk attributable to the 
standard. Estimates of the prevailing level of risk 
and of the reduction in risk to be anticipated from a 
proposed standard should be unbiased expected-value 
estimates rather than hypothetical worst-case esti- 
mates. Extreme safety or health results should be 
weighted (along with intermediate results) by the 
probability of their occurrence to estimate the ex- 
pected result implied by the available evidence. In 
addition, to the extent possible, the distribution of 
probabilities for various possible results should be 



presented separately, so as to allow for an explicit 
margin of safety, where required, in final decisions. If 
a margin of safety is to be provided, the proper place 
for it is the final stage of the decision-making pro- 
cess, not by adjusting the risk or benefit estimates in 
a conservative direction at the information-gathering 
or analytical stages of the process. Conservative esti- 
mates should be presented as alternatives to best 
estimates for sensitivity analysis but should not sub- 
stitute for them. 

It is important to guard against double-counting of 
benefits. For example, if a regulation improved the 
quality of the environment in a community, the value 
of real estate in the conununity might rise, reflecting 
the greater attractiveness of living in the improved 
environment. It would ordinarily be incorrect to in- 
clude the rise in property values among the benefits 
of the regulation. Ordinarily, the value of environ- 
mental benefits (e.g., reduced health risks, scenic 
improvements) will already be included among the 
benefits. The rise in property values reflects the 
capitalized value of these improvements. Therefore, 
to count as benefits both the value of the environ- 
mental improvements and the corresponding increase 
in property values is to count the same benefits 
twice. Only where a direct estimate of the benefits 
has not been included would it be appropriate to 
include the increase in property values among the 
benefits. 

I. General Considerations. The concept of "opportu- 
nity cost" is the appropriate construct for valuing 
both benfits and costs. The principle of "Svillingness- 
to-pay" captures the notion of opportunity cost by 
providing an aggregate measure of what individuals 
are willing to forgo so as to enjoy a particular benefit. 
Market transactions provide the richest database for 
estimating benefits based on willingness-to-pay, so 
long as the goods and services affected by a potential 
regulation are traded in markets. Estimation prob- 
lems arise in a variety of instances, of course, where 
prices or market transactions are difficult to monitor. 
Markets may not even exist in some instances, for- 
cing regulatory analysts to develop appropriate prox- 
ies that simulate market exchange. Indeed, the ana- 
lytical process of deriving benefit estimates by 
simulating markets may suggest alternative regula- 
tory strategies that create such markets. 

Willingness to pay always provides the preferred 
measure of benefits. Estimates of willingness-to-pay 
based on observable and replicable behavior deserve 
the greatest level of confidence. Considerably less 
confidence should be conferred on benefit estimates 
that are neither derived from market transactions 
nor based on behavior that is observable or replica- 
ble. Of course, innovative benefit estimation method- 



Regulatory Impact Analysis Gutoance 



55 



B 



661 



olupes may be ncccssatA in some cases, and should 
be encouraged. However, reliance upon such methods 
intensifies the need for quality control to ensure that 
estimates derived conform as closely as possible to 
what would be observed if markets existed. 

2. Principles fur Valuing Directly Observable Bene- 
fifs. Ordinarily, goods and services are to be valued at 
their market pnces. However, in some instances, the 
market value of a good or service may not reflect its 
true value to society. If a regulatory alternative 
involves changes in such a good or service, its mone- 
tary value for purposes of benefit-cost analysis should 
be derived using an estimate of its true value to 
society (often called its "shadow price"). For example, 
suppose a particular air pollutant damages crops. 
One of the benefits of controlling that pollutant will 
be the value of the crop saved as a result of the 
controls. If the price of that crop is held above the 
free-market equilibrium price by a government price- 
support program it will overstate the value of the 
benefit of controlling the pollutant if the crop saved 
were valued at the market price established by the 
support program. The social value of the benefit 
should be calculated using a shadow price for crops 
subject to price supports. The estimated shadow price 
should reflect the value to society of marginal uses of 
the crop (e.g., the world price if the marginal use is 
for exports). If the marginal use is to add to very 
large surplus stockpiles, the shadow price would be 
the value of the last units released from storage 
minus storage cost. Therefore, where stockpiles are 
large and growing, the shadow price is likely to be 
low and could well be negative. 

3. Principles for Valuing Benefits that are Indirectly 
Traded in Markets. In some important instances, a 
benefit corresponds to a good or service that is 
indirectly traded in the marketplace. Important ex- 
amples include reductions in the health-and-safety 
risks, the use-value of environmental amenities and 
scenic vistas, and savings in time. Tb estimate the 
monetary value of such an indirectly traded good, the 
willingness-to-pay valuation methodology is still con- 
ceptually superior, because the amount that people 
are willing to pay for a good or service is the best 
measure of its value to them. As noted in Sections 4 
and 5 immediately following, alternative methods 
may be used where there are practical obstacles to 
the accurate application of direct willingness-to-pay 
methodologies. 

A variety of methods have been developed for 
estimating indirect benefits. Generally, these methods 
apply statistical techniques to distill from observable 
market transactions the portion of willingness-to-pay 
that can be attributed to the benefit in question. 
Examples include estimates of the value of environ- 



mental amenities derived from travel-cost studies, 
hcdonic price models that measure difTerenccs or 
changes in the value of land, and statistical studies of 
occupational-risk proiniunis in wage rates. 

Contingent-valuation methods have become in- 
creasingly popular for estimating indirect benefits, 
but they suffer from the fact that survey instruments 
have a limited capacity to simulate real-world market 
behavior Benefit estimates denved from contingent- 
valuation studies thus have a greater burden of 
analytical care to ensure that they represent in an 
unbiased manner what actually occurs in the market- 
place. 

4. Principles and Methods for Valuing Benefits that 
are Not Traded Directly or Indirectly in Markets. 
Some types of goods, such as the social benefit of 
preserving environmental amenities apart from their 
use and direct enjoyment by people, are not traded 
directly or indirectly in markets. The practical obsta- 
cles to accurate measurement are similar to (but 
generally more severe than) those arising with re- 
spect to indirect benefits, principally because there 
are not market transactions to provide data for will- 
ingness-to-pay estimates. 

Contingent-valuation methods provide the only an- 
alytical approaches currently available for estimating 
the benefits of such untraded goods. The absence of 
observable and replicable behavior with respect to the 
benefit in question, combined with the difficulties of 
avoiding bias in contingent-valuation studies, argues 
for great care and circumspection in the use of such 
methods. This means, for example, that estimates of 
willingness-to-pay must incorporate the variety of 
alternative means individuals have of expressing 
value for untraded goods. Moreover, analyses must 
faithfully capture individuals' budget constraints, 
which restrict their willingness-to-pay for untraded 
as well as traded goods and services. Benefit analyses 
derived from contingent valuation and similar meth- 
ods thus require considerable analytic rigor in design 
and careful execution. Absent such efforts, analyses 
based heavily on the benefits of untraded goods and 
services ordinarily would fail the test of a satisfactory 
RIA. 

5. Methods for Valuing Health and Safety Benefits. 
For health and safety benefits, a distinction should be 
made between risks of nonfatal illness or injury and 
fatality risks. 

(a) Nonfatal illness and injury. Although the will- 
ingness-to-pay approach is conceptually superior, the 
current state of empirical research in the area is not 
sufficiently advanced to assure that estimates derived 
by this method are necessarily superior to direct-cost 
valuations of reductions in nsks of nonfatal illness or 
injury. Any injury-value estimate from a willingness- 



H 



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REGULATORY PROGRAM OF THE UNITED STATES GOVERNMENT 



to-pay study is necessarily an average over a speciflc 
combination of injuries of varying severity. If the 
average injury severity in such a study is greatly 
different from that for the regulatory action under 
study, then the study's estimated injury value may 
not be appropriate for evaluating that action. Accord- 
ingly, the agency should use whichever approach it 
considers most appropriate for the decision at hand. 
The primary components of the direct-cost approach 
are medical cosU and the value of lost production. 
Possibly important costs that may be omitted by the 
use of the direct-cost approach are the value of pain 
and suffering and the value of time lost from leisure 
and other activities that are not economically directly 
productive. 

(b) Fatality. Reductions in fatality risks are best 
monetized according to the willingness-to-pay ap- 
proach. The value of changes in fatality risk is 
sometimes expressed in terms of the "Value of life." 
This is something of a misnomer since the value of a 
life really refers to the sum of many small reductions 
in fatality risk. For example, if the annual risk of 
death is reduced by one in a million for each of two 
million people, that represents two "statistical lives" 
saved per year (two million x one millionth = two). If 
the annual risk of death is reduced by one in 10 
million for each of 20 million people, that also repre- 
sents two statistical lives saved. The conclusion that 
the fatality risk reductions in these two cases are 
equivalent implies an assumption. The implicit as- 
sumption — that equal increments in risk are valued 
equally — allows different risk increments to be added 
together and compared directly. As a different exam- 
ple, suppose there are two alternative reductions in 
the annual risk faced by an individual: 

A: fTt)m .10 X 10"* to .09 x 10"* = .01 x 10"* 
B: from 1.00 x 10"* to .99 x 10"* = .01 x lO"* 

Since in both cases the reduction in annual risk is 
the same (.01 x. 10*), the value of A and B should be 
considered the same. 

The assumption that equal increments in fatality 
risk are of equal value is a legitimate one, so long as 
the level of fatality risk is below 10"* annually. There 
is evidence that the willingness-to-pay value for 
increments in fatality risk does not change signifi- 
cantly over a wide range of risk exposure below 10~* 
annually. 

For levels of annual risk exposure of 10~* and above 
it cannot be assumed that equal increments of risk 
are valued equally. At these higher risk levels, it is 
particularly important to distinguish between situa- 
tions of voluntary risk assumption and those of invol- 
untary risk. Where the high risk is involuntary, it is 



appropriate to value reductions in risk from that high 
level more highly than equal risk reductions at lower 
risk levels. In general, the greater the risk that an 
individual bears, the higher will be the value the 
individual places on marginal changes in risk. On the 
other hand, where a high risk is chosen voluntarily 
those assuming the risk tend to be persons who place 
a relatively low value on averting safety risks. Empir- 
ical studies of risk premiums in high-risk occupations 
suggest that reductions in voluntarily assumed high 
risks should be valued less than equal risk reductions 
at ordinary risk levels. 

Estimates of the value of fatality risks refer only to 
changes in an uncertain risk of death. They have no 
application to the certain prevention of the death of 
an identifiable individual. 

6. Alternative Methodological Frameworks for Esti- 
mating Health and Safety Benefits. Several alterna- 
tive ways of incorporating fatality risks into the 
framework of benefit-cost analysis may be appropri- 
ate. These may involve either explicit or implicit 
valuation of fatality risks. 

One acceptable explicit valuation approach would 
be for the agency to select a single value for reduc- 
tions in fatality risk at ordinary risk levels (below 
10~* annually) and use this value consistently for 
evaluating all its programs that affect ordinary fatal- 
ity risks. Another acceptable explicit valuation ap- 
proach would be to use a range of values for reduc- 
tions in fatality risk and apply sensitivity analysis as 
vrith other parameters that have alternative plausible 
values. The range of alternative values should be a 
reasonable one, not one that includes the most ex- 
treme upper and lower values of fatality risk reduc- 
tion that have been estimated. Extreme values are 
more appropriate for instances of extraordinarily high 
risks (above 10~* annually), with the extreme low 
values being appropriate where voluntary assumption 
of high risk leads to self-selection and the extreme 
high values being appropriate where the high risk is 
involuntarily assumed. 

Where the analysis uses a range of alternative 
values for reductions in fatality risk, it may be useful 
to calculate break-even values, as in other sensitivity 
analyses. This requires calculating the borderline 
value of reductions in fatality risk at which the net 
benefit decision criterion would switch over from 
favoring one alternative to favoring another (i.e., the 
value of fatality risk at which the net benefits of the 
two alternatives are equal). This method will fre- 
quently be infeasible because of its computational 
demands or because alternatives are continuous 
rather than discrete (e.g., alternative stringencies for 
exposure levels), but where appropriate, it is a useful 
supplement to the sensitivity analysis. 



Regulatory Impact Analysis Guidance 



57 




663 



An implicit valuation approach could entail calcula- 
tions of the cost per unit of reduction in fatality nsk 
(cost per "statistical life saved"), with costs defined as 
costs minus monetized benefits. This must be used 
vvith care since there is a serious potential pitfall: It 
IS not correct to choose between two mutually exclu- 
sive alternatives by selecting the alternative with 
lowest cost per statistical life saved. The alternative 
with higher cost per life saved may nonetheless be 
the alternative with the higher net benefit to society. 

The way to avoid this pitfall while retaining the 
implicit valuation approach is to make all calcula- 
tions of cost per life saved in terms of increments 
between alternatives. Alternatives should be arrayed 
in order of their total reduction in expected fatalities 
and the incremental cost per life saved calculated 
between each adjacent pair of alternatives. In con- 
trast to explicit valuation approaches, this avoids the 
necessity of specifying in advance a value for reduc- 
tions in fatality risks. However, a range of values will 
be implied by the final selection of an alternative. 
This range should be consistent with estimated val- 
ues of reductions in fatality risks calculated according 
to the willingness-to-pay methodology. 

Another way of expressing reductions in fatality 
risks is in terms of life-years saved. For example, if a 
regulation protected individuals whose average re- 
maining life expectancy was 40 years, then a risk 
reduction of one fatality would be expressed as 40 
life-years saved. Such a refinement may be desirable 
for regulations that disproportionately protect young 
people (e.g^' motor vehicle safety regulations) or el- 
derly people (e.g., regulations controlling carcino- 
gens), ib derive the value of a life-year saved from an 
estimate of the value of life, first determine the 
average remaining life expectancy of the sample pop- 
ulation in the study from which the estimate was 
drawn. Assuming that the average age of the sample 
population is known, the average remaining life ex- 
pectancy may be derived from actuarial tables giving 
life expectancy in relation to age. Using standard 
compound interest tables, the value of a life-year 
saved can then be determined as the estimated value 
of life anniialized over a period equal to the number 
of years of remaining average life expectancy. 

C. Cost Estimates 

1. General Considerations. The opportunity cost of 
an alternative is the value of the benefits foregone as 
a consequence of that alternative. For example, the 
opportunity cost of banning a product (e.g., a drug, 
food additive, or hazardous chemical) is the foregone 
net benefit of that product. It is measured by changes 
in producers' and consumers' surpluses. (Producers' 
surplus is the difference between the amount a 



producer is paid lor a unit of a good and the mini- 
mum amount the producer would accept to supply 
that unit. It is measured by the distance between the 
price and the supply curve for that unit. Consumers' 
surplus IS the difference between what a consumer 
pays for a unit of a good and the maximum amount 
the consumer would be willing to pay for that unit. It 
is measured by the distance between the price and 
the demand curve for that unit.) As another example, 
even if a resource required by regulation does not 
have to be paid for because it is already owned by the 
regulated firm, nonetheless, the use of that resource 
to meet the regulatory requirement has an opportu- 
nity cost equal to the net benefit it would have 
provided in the absence of the requirement. Any such 
foregone benefits for an alternative should be mone- 
tized wherever possible and either added to the costs 
or subtracted from the benefits of that alternative. 
Any costs that are averted as a result of an alterna- 
tive should be monetized wherever possible and ei- 
ther added to the benefits or subtracted from the 
costs of that alternative. 

All costs calculated should be incremental, that is, 
they should represent changes in costs that would 
occxir if the regulatory alternative is chosen compared 
to costs in the base case (ordinarily no regulation or 
the existing regulation). Future costs that would be 
incurred even if the regulation is not promulgated, as 
well as costs that have already been incurred (sunk 
costs), are not part of incremental costs. If marginal 
cost is not constant for any component of costs, 
incremental costs should be calculated as the area 
under the marginal cost curve over the relevant 
range. 

Costs include private-sector compliance costs, gov- 
ernment administrative costs, and costs of reallocat- 
ing workers displaced as a result of the regulation. 
Costs that are not monetary outlays must be included 
and should be attributed a monetary value wherever 
possible. Such costs may include the value (opportu- 
nity cost) of benefits foregone, losses in consumers' or 
producers' surpluses, discomfort or inconvenience, 
and loss of time. A schedule of monetized costs should 
be included that would show the type of cost and 
when it would occur; the numbers in this table 
should be expressed in constant, undiscounted dol- 
lars. Any expected incremental costs that cannot be 
monetized should be explained. An important type of 
cost that often cannot be quantified is a slowing in 
the rate of irmovation or of adoption of new technol- 
ogy. For example, regulations requiring a costly and 
time-consuming approval process for new products or 
new faciUties may have such costs, as may regula- 
tions setting much more stringent standards for new 
facilities than existing ones. 



B 



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Administrative Procedure Act Appendix 



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KKGULATORY PKOC.RAM OF THE UNITED STATES GOVERNMENT 



Two accounting cost concepts that should not be 
counted as costs in benefit-cost analysis are interest 
and depreaation. The time value of money is already 
accounted for by the discounting of benefits and costs. 
Depreciation is already taken into account by the 
time distribution of benefits and costs; the only legiti- 
mate use for depreciation calculations in benefit-cost 
analysis is to estimate the salvage value of a capital 
investment. 

2. Real Costs versus Transfer Payments. An impor- 
tant, but sometimes difficult, problem in cost estima- 
tion is to distinguish between real costs and transfer 
payments. Transfer payments are not genuine costs 
but payments for which no real good or service is 
received in return. Several examples of problems that 
may arise from the confusion between transfer pay- 
ments and real costs (or benefits) may help to iden- 
tify situations in which further analysis of the prob- 
lem may be warranted. Monopoly profits, insurance 
payments, government subsidies and taxes, and dis- 
tribution expenses are four potential problem areas. 

(a) Monopoly profits. If, for example, sales of a 
competitively produced product were restricted by a 
government regulation so as to raise prices to con- 
sumers, the resulting monopoly profits are not a 
benefit of the rule, nor is their payment by consumers 
a cost. The real benefit-cost effects of the regulation 
would be represented by changes m producers' and 
consumers' surpluses. 

(b) Insurance payments. Potential pitfalls in bene- 
fit-cost analysis may also arise in the case of insur- 
ance payments, which are transfers. Suppose, for 
example, a worker safety regulation, by decreasing 
employee injuries, led to reductions in firms' insur- 
ance premium pajrments. It would be incorrect to 
count the amount of the reduction in insurance pre- 
miums as a benefit of the rule. The proper measure 
of benefits is the value of the reduction in worker 
injuries, monetized as described previously, plus any 
reduction in real costs of administering insurance 
(such as the time of insurance company employees 
needed to process claims) due to the reduction in 
worker insurance claims. Reductions in insurance 
premiums that are matched by reductions in insur- 
ance claim payments are changes m transfer pay- 
ments, not benefits. 

(c) Indirect taxes and subsidies. A third instance 
where special treatment may be needed to deal with 
transfer payments is the case of indirect taxes (tariffs 
or ezase taxes) or subsidies on specific goods or 
services. Suppose a regulation requires firms to pur- 
chase a $10,0(X) piece of imported equipment, on 
which there is a $I,(XX) customs duty. For purposes of 
benefit-cost analysis the cost of the regulation for 
each firm ordinarily would be $10,000, not $11,0(X). 



since the $1,000 customs duty is a transfer payment 
from the firm to the Treasury, not a real resource 
cost. This approach, which implicitly assumes that 
the equipment is supplied at constant costs, should 
be used except in special circumstances. Where the 
taxed equipment is not supplied at constant cost, the 
technically correct treatment is to calculate how 
many of the units purchased as a result of the 
regulation are supplied from increased production 
and how many from decreased purchases by other 
buyers. The former units would be valued at the price 
without the tax and the latter units would be valued 
at the price including tax. This calculation is usually 
difficult and imprecise because it requires estimates 
of supply and demand elasticities, which are often 
difficult to obtain and inexact. Therefore, this treat- 
ment should only be used where the benefit-cost 
conclusions are likely to be sensitive to the treatment 
of the indirect tax. While costs ordinarily should be 
adjusted to remove indirect taxes on specific goods or 
services as described here, similar treatment is not 
warranted for other taxes, such as general sales taxes 
applying equally to most goods and services or in- 
come taxes. 

(d) Distribution expenses. The treatment of distri- 
bution expenses is also a source of potential error. 
For example, suppose a particular regulation raises 
the cost of a product by $100 and that wholesale and 
retail distribution expenses are on average 50 percent 
of the factory-level cosL It would ordinarily be incor- 
rect to add a $50 distribution markup to the $100 
cost increase to derive a $150 incremental cost per 
product for benefit-cost analysis. Most real resource 
costs of distribution do not increase with the price of 
the product being distributed. In that case, either 
distribution expenses would be unchanged or, if they 
increased, the increase would represent distributor 
monopoly profits. Since the latter are transfer pay- 
ments, not real resource costs, in neither case should 
additional distribution expenses be included in the 
benefit-cost analysis. However, increased distribution 
expenses should be counted as costs to the extent 
that they correspond to increased real resource costs 
of the distribution sector as a result of the change in 
the price or characteristics of the product. 

D. Expenditure Rules 

Regulations establishing terms or conditions of 
Federal grants, contracts, or financial assistance call 
for a different form of regulatory analysis than do 
other types of regulation. In some instances, a full- 
blown benefit-cost analysis may be appropriate to 
inform Congress and the President more fully about 
the desirability of the program, but this would not 
ordinarily be required in a Regulatory Impact Analy- 



Regulatory Impact Analysis Guidance 



59 




665 



SIS The pnmary function of the RIA for this type of 
re{;ulation should be to vcnfy that the terms or 
conditions are the minimum necessary to achieve the 
purposes for which the funds were appropriated. 
They should not contain conditions in pursuit of goals 
that are not germane to the purpose for which the 
funds were authorized and appropriated. Beyond con- 
trols to prevent abuse and to ensure that funds 
appropriated to achieve a specific purpose are chan- 
neled efficiently toward that end, maximum discre- 
tion should be allowed in the use of Federal funds, 
particularly when the recipient is a State or local 
government. 

rv. RATIONALE FOR CHOOSING THE 
PROPOSED REGULATORY ACTION 

The RIA should include an explanation of the 
reasons for choosing the selected regulation. Ordinar- 
ily, the regulatory alternative selected should be the 
one that achieves the greatest net benefits. If legal 
constraints prevent this choice, they should be identi- 
fied and explained, and their net cost should be 
estimated. 

Where uncertainties are substantial or a large 
proportion of benefits cannot be monetized, other 
methods of summarizing the benefit-cost analysis 
may sometimes be appropnate. When alternative 
forms of presentation are used, the objective must 
continue to be the maucimization of net benefits (ex- 
cept where prohibited by law). Alternative criteria 
must be used with care because of the potential for 
errors or misinterpretation. 

Agencies need not calculate the internal rate of 
return for a regulation. The internal rate of return is 
often difTicult to compute and is problematical when 
multiple rates exist. It must not be used as a crite- 
rion for choosing between mutually exclusive alterna- 
tives. As a criterion for choosing between alternatives 
that are not mutually exclusive, it has no advantages 
over the criterion of maximizing the present value of 
net benefits. 

Benefit-cost ratios, if used at all, must be used with 
care to avoid a common pitfall. It is a mistake to 
choose among mutually exclusive alternatives by se- 
lecting the alternative with the highest ratio of bene- 
fits to costs. An alternative with a lower benefit-cost 
ratio than another may have the higher net benefits. 
Whether a regulation's benefits are greater (or less) 
than its costs can be determined by whether its 
benefit-cost ratio is greater (or less) than one. The 
benefit<ost ratio may be used as a very simplified 
indicator of the likely sensitivity of the result: If the 
benefit-cost ratio is much greater than one, the con- 
clusion that the regulation's benefits exceed its costs 



probably is not sensitive to likely alternative param- 
eter values. If the ratio is only slightly greater than 
one, the conclusion probably is sensitive. The benefit- 
cost ratio may sometimes be acceptable as a roujjh 
substitute for genuine sensitivity analysis where it is 
not feasible to carry out a full sensitivity analysis 
(e.g., if the number of regulatory parameters to be 
tested by sensitivity analysis is large). When so used, 
the benefit-cost ratio should be recognized as only a 
crude approximation to a genuine sensitivity analysis 
and the analyst should be aware of its limitations 
(e.g., the benefit-cost ratio is sensitive to the arbi- 
trary classification of an item as a benefit or an 
averted cost). 

Where the benefits of proposed regulatory alterna- 
tives include reductions in fatality risks, an accept- 
able alternative to direct calculation of net benefits is 
the indirect approach of calculating incremental costs 
per life saved between adjacent alternatives. This is 
done by ranking all the alternatives according to the 
number of lives they save and then calculating the 
change in costs and the change in lives saved be- 
tween each alternative and the one with the next 
highest number of lives saved. If the alternative 
selected is the one whose incremental cost per life 
saved is closest to the willingness-to-pay value of life, 
this decision criterion is analytically equivalent to 
that of maximizing net benefit. 

In cases where important benefits cannot be as- 
signed monetary values, cost-effectiveness analysis 
should be used where possible to evaluate alterna- 
tives that generate equivalent nonmonetizable bene- 
fits. Costs should be calculated net of monetized 
benefits. Between two alternatives with equivalent 
nonmonetizable benefits, the alternative with the 
lower net costs should be selected. Cost-effectiveness 
analysis should also be used to compare regulatory 
alternatives in cases where the level of benefits is 
specified by statute. 

V. STATUTORY AUTHORITY 

The RIA should include a statement of determina- 
tion and explanation that the proposed regulatory 
action is within the agency's statutory authority. 

Further R«ading 

Edith Stokey and Richard Zeckhauser, A Primer for 
Policy Analysis. Chapters 9 and 10 provide a good 
introduction to basic concepts. 

E. J. Mishan, Economics for Social Decisions: Ele- 
ments of Cost-Benefit Analysis. Assumes some knowl- 
edge of economics. Chapters 5-8 should be helpful on 
the important subjects of producers' and consumers' 



D 



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Administrative Procedure Act Appendix 



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REGULATORY PROGRAM OF THE UNITED STATF:S GOVERNMENT 



surpluses (not discussed extensively in this guidance 
document). 

W. Kip Viscusi, Risk By Choice. Chapter 6 is a good 
starting point for the topic of valuing health and 
safety benefits. Other more technical sources are 
given in the bibliography. 

Robert Cameron Mitchell and Richard C. Carson, 
Using Surveys to Value Public Goods: The Contingent 
Valuation Method. Provides a valuable discussion on 



the potential pitfalls associated with the use of con- 
tingent-valuation methods. 

V. Kerry Smith, Ed., Advances in Applied Micro- 
economics: Risk, Uncertainty, and the Valuation of 
Benefits and Costs. 

Judith D. Bentkover, Vincent T. Covello. and Jeryl 
Mumpower. Eds., Benefits Assessment: The State of 
the Art. 



Presidential Review of Agency Rulemaking 61 

Office of Management and Budget 

MEMORANDUM FOR THE HEADS 

OF DEPARTMENTS AND AGENCIES 

Presidential Review of Agency Rulemaking (April 3, 1989) 





EXECUTIVE OFFICE OF THE PRESIDENT 

OFFICE OF MANAGEMENT AND BUDGET 

WASMIN<rrON. O.C. 30003 

April 3, 1989 



KEMORANDUM FOR THE HEADS OF DEPARTMENTS AND AGENCIES 
FROM: Richard C. Darman // C" /V^ 



Director // .^</<^>^-vy> 



SX7BJECT: Prasidantial Raviav of Agancy Rulaaaking 

This is to call your attantio'n to the requirements of 
Executive Order Nos. 12291 and 12498, and of the Paperwork 
Reduction Act of 1980. In the Executive Orders, the President 
delegated to the Office of Management and Budget (OMB) the 
responsibility for Executive Office of the President review of 
agency ruleaaJcing (including not only formal regulations but 
other directives that are not solely for intra-agency 
administration) . Similarly, the Paperwork Act requires the 
review of agency information collections and delegates the 
responsibility to OMB. The attached paper summarizes the review 
processes that implement these requirements. 

It is the goal of OMB to carry out these procedures as 
expeditiovisly and cooperatively as possible. Experience has 
sho%m that the process of review is aided, both for the agency 
and for OMB, if a senior representative of your office — often 
the Deputy or Under Secretary -- is designated as the responsible 
policy official for these activities. Within OMB, the office 
responsible for both regxilatory and paperwork reviews is the 
Office of Information and Regulatory Affairs (OIRA) . Upon 
designation of your office's representative, the Administrator of 
OIRA will be glad to meet to discuss the process and the review 
status of pending rules and related issues. 

Attachment 



B 



62 Administrative Procedure Act Appendix 



March 1989 



IMPLEMENTATION OF EXECUTIVE ORDER NOS . 12291 AND 12498 AND THE 
PAPERWORK REDUCTION ACT. 



I. Executive Order No. 12498 . 

E.O. No. 12498 requires the Administration annually to 
publish a Regulatory Program of the United States Government 
outlining the Administration's regulatory priorities and upcoming 
important regulatory actions. The Order also creates the annual 
regulatory planning process that results in the publication of 
this book. 

In a process similar to the fiscal budget process, at the 
beginning of each year each major regulatory agency drafts its 
regulatory program — a summary of its regulatory policies, and a 
list of specific regulatory development projects underway. These 
draft regulatory programs are reviewed by 0MB for consistency 
with the Administration's regulatory principles and priorities, 
and the planned actions of other regulatory agencies. If a 
planned regulatory action is consistent with these principles and 
priorities, then the action is included in the published 
Regulatory Program. 

The next Regulatory Program, covering the regulatory 
activities of 26 agencies for the period April 1, 1989 through 
March 31, 1990, will provide the Congress and the public with 
descriptions and timetables for these significant regulatory 
actions. The rulemaking actions could be preliminary, in the 
sense of studies or other activities intended to lead to a 
decision of whether to undertake a rulemaking, as well as those 
underway as proposed or final rules. The 1989 Regulatory Program 
also provides agency heads an opportunity to focus on the 
upcoming work of their agencies, determine agency goals and 
regulatory priorities, and determine whether a particular 
regulatory action is worth starting before committing agency 
resources to it. Under the Executive Order, if an agency later 
requests 0MB review of an important draft proposed or final rule 
that was not included in the 1989 Regulatory Program, but that 
should have been, 0MB may return it to the agency for further 
work and for inclusion in the next year's Regulatory Program. 

Note: Agencies were to submit their draft 1989 regulatory 
programs for 0MB review by January 9, 1989. Most agencies have 
already submitted them. New agency heads and policy officials 
should review these submissions, and revise them as may be 
necessary to reflect their regulatory strategies for the upcoming 
year; at the request of a newly-appointed agency head, 0MB will 
defer final review to provide reasonable opportunity for agency 
reassessment. 



Presidential Review of Agency Rulemaking 63 




II. Executive Order No. 12291 . 

E.O. No. 12291 establishes Presidential oversight of agency 
rulemaking, requiring review of regulatory actions before they 
are proposed for public comment, and again before they are issued 
in final form. The Order defines "regulation" or "rule" broadly 
to include all agency policy guidance that affects the public, 
including procurement practice, grant or loan procedures, 
guidance to the public, interpretations of rules and statutes, 
and regulatory actions that relate to international trade. 

Following transmittal to 0MB by the head of the agency of a 
draft proposed rule, generally called a notice of proposed 
rulemaking, 0MB reviews this draft proposed rule for consistency 
with the regulatory principles stated in the Order. The review 
includes assessing whether the rule is based on adequate 
information concerning the need for and consequences of the 
proposed government action; whether the potential benefits to 
society of the regulation outweigh its costs; whether the 
regulatory objectives are chosen to maximize the net benefits to 
society; and whether the regulatory alternative chosen involves 
the least net cost to society. Additional guidance for review 
was promulgated by the Presidential Task Force on Regulatory 
Relief in August 1983. 

An important part of OMB review of the draft rule includes 

evaluation for possible impact on the programs of other agencies. 

OMB arranges for review by affected agencies, and for the 
coordination of agency positions as necessary. 

If the rule is a "major** rule as defined by the Executive 
Order (i.e., a rule likely to result in an impact of SlOO million 
or more annually, a major increase in costs or prices, or 
significant adverse effects on competition, employment, 
investment, productivity or a particular industry, or as 
otherwise designated by OMB) , the agency must prepare a written 
analysis called a Regulatory Impact Analysis (RIA) . The RIA must 
contain an analysis of the rule's full social impact, including 
its costs and benefits. This is submitted to OMB along with the 
applicable draft rule. The preparation of this Regulatory Impact 
Analysis is important to assist the agency head in evaluating the 
need for and consequences of possible Federal action and in 
selecting from alternate ways to structure the rule, and to 
provide OMB and the public with a broader understanding of the 
scope of the issues that may be involved. OMB published detailed 
draft Regulatory Impact Analysis guidance in the 1988 Regulatory 
Program. 

In the course of its review of the proposed rule (and the 
accompanying RIA, where applicable) , OMB works closely with the 
agency. When OMB has completed its review of a proposed rule, 



-2' 




64 Administrative Procedure Act Appendix 



OMB notifies the agency that it has concluded review. After 
receiving notification from OMB that it has concluded review, the 
agency may proceed to issue the proposed rule. 

Following publication of the proposed rule, the agency 
receives and reviews the public comments. After it drafts the 
rule in its final form, the draft final rule is submitted to OMB 
for review in much the same fashion as the draft proposed rule, 
and a similar review process is conducted. In the case of 
regulations subject to statutory or judicial deadlines, OMB will 
not unilaterally delay publication beyond the deadline. In such 
cases it is incximbent upon the agency to submit the rule to OMB 
in a timely fashion, so as to provide a meaningful opportunity 
for Executive Office review. When necessary due to delays in 
agency clearance procedures, the draft rule should be submitted 
to OMB for preliminary review at the same time as it is being 
reviewed by the agency's senior policymakers. 

III. Paperwork Reduction Act . 

The Paperwork Reduction Act of 1980 (44 U.S.C. chapter 35) 
requires that OMB approve all collections of information by an 
agency before they can be implemented. A collection of 
information includes (1) requests for information, written or 
oral, for transmission to the government, and (2) requests that 
one party disclose information to another. Many information 
collections and recordkeeping requirements are contained or 
authorized by regulations as monitoring or enforcement tools, 
while others appear in written questionnaires and their 
accompanying instructions. The Act's underlying goal is to 
minimize the Federal paperwork burden on the public. At the same 
time, the Act recognizes the importance of information to the 
successful completion of agency missions, and charges OMB with 
the responsibility of weighing the burdens of the collection on 
the public against the needs of the agency. 

Agencies must justify, in writing, to OMB and to the pub. ic 
each proposed collection of information, and include estimates of 
the reporting burden on respondents. In submitting a clearance 
request to OMB, an agency must demonstrate that the collection of 
information is the least burdensome way of obtaining information 
necessary for the proper performance of its functions, that the 
collection is not duplicative of others, and that the collection 
has practical utility. 

To alert the public, agencies must publish a notice in the 
Federal Register of the agency's submission to OMB of a request 
for approval and, in certain circumstances, publish the draft 
information collection itself. The public — during OMB's review 
and at any other time — is to have full opportunity to make its 
views known concerning any Federal data collection, both as to 
its perceived need and the reporting burdens involved. 



-3- 



Presidential Review of Agency Rulemaking 



65 



n 



Under the Act, 0MB approval for an agency to use each data 
collection instrument can last a maximum of three years. Failure 
to obtain 0MB approval means that the requirement for the public 
to provide the data collection is without legal force, and that 
an agency may not subject the respondent to any penalty for 
failure to comply with the request for information. 



-4- 



Attorney General's Manual on the APA 67 



B 

Attorney General's Manual 

on the 

Administrative Procedure Act 




I 



Prepared by the 

United States Department of Justice 



TOM C. CLARK 
Attorney General 

1947 



68 Administrative Procedure Act Appendix 

TABLE OF CONTENTS 

Page 

Introduction 5 

Note Concerning Manner of Citation of Legislative Matenal 8 

I— Fundamental Concepts. — -. 9 

a. Basic Purposes of the Administrative Procedure Act 9 

b. Coverage of the Administrative Procedure Act 9 

c. Distinction between Rule Making and Adjudication 12 

II-nSECTioN 8, Public Information.— 17 

Agencies Subject to Section 8 17 

Exceptions to Requirements of Section 3.„ 17 

(1) Any function of the United States requiring secrecy in the public 
interest 17 

(2) Any matter relating solely to the internal management of an agency.. 18 

Effective Date— Prospective Operation 18 

Section 3 (a)— Rules 19 

Separate Statement... 19 

Description of Organization — 19 

Statement of Procedures 20 

Substantive Rules ~ 22 

Section 8 (b) — Opinions and Orders _ 23 

Section 3 (c)— Public Records — 24 

III— Section 4, Rule Making. 26 

Exceptions 

(1) Any military, naval, or foreign affairs function of the United States.... 26 

(2) Any matter relating to agencv management or personnel or to pub- 
lic property, loans, grants, benefits, or contracts 27 

Public Property 27 

Loans. 27 

Grants. 27 

Benefits 28 

Contracts ~ 28 

Section 4(a)— Notice 28 

Contents of notice ~ -. 28 

Section 4(a) and (b) applicable only to substantive rules 30 

Omission of notice and public procedure for good cause 30 

Section 4 (b)— Procedures 31 

Informal rule making 31 

Formalrule making _ 32 

Publication of procedures 36 

Section 4 (c)— Effective Dates 35 

Section 4 (d)— Petitions. 38 

IV — Section 6, Adjudication. 40 

General Scope of Formal Procedural Requirements 40 

Exempted adjudications. 43 

Section 6(a)— Notice.^ 46 

Responsive pleading 47 

Section 6(b) — Procedure 47 

Section 5(c) — Separation of Functions 60 

Exceptions _ 50 

Hearing ofiScers 53 

The agency 56 

Section 6(d) — Declaratory Orders. 59 

V— Section 6, Ancillary Matters 61 

Governing definitions 61 

Section 6(a) — Appearance. 6J 

Formal appearance 6! 

Informal appearance 6' 

Practice before Agencies 6 



Attorney General's Manual on the APA 69 




Page 

Section 6G))—Inve8tigation8 66 

Section 6 (c) — Subpenas 67 

Section 6(d)— Denials...- ~ 69 

VI— Section 7, Hearings 71 

Section 7(a) — Presiding Ofl5cers 71 

Section 7(b) — Hearing Powera. 74 

Section 7 (c) — Evidence 75 

Burden of proof 75 

Evidence 75 

Presentation of evidence. 77 

Section 7(d)— Record 79 

Record 79 

Ofladal notice. 79 

VII— Section 8, Decisions 81 

Section 8(a)— Who Deddea. 81 

Appeals and review 83 

Section 8(b) — Submittals and Decisions 85 

Decisions 86 

Appeals to superior agency. 87 

VIII— Section 9, Sanctions and Powers — 88 

Section 9(a)— Sanctions 88 

Section 9 (b)— Licenses 89 

Applications for licenses 89 

Suspension or revocation of licenses.— 90 

Renewal of licenses 91 

IX— Section 10, Judicial Review — 93 

Scope of Section 10 94 

Section 10(a)— Right of Review 95 

Section 10(b) — Form and Venue of Action. 96 

Form of Action. 97 

Venue 98 

Review in enforcement proceedings 99 

Section 10(c) — Reviewable Acts. 101 

Section 10(d)— Interim Relief 105 

Section 10(e)— Scope of Review — 107 

Appendix A — Text of Administrative Procedure Act 111 

Appendix B— Attorney General's letter of Oct. 19, 1945 123 



Attorney General's Manual on the APA 7 1 

INTRODUCTION 

June 11, 1946, the date on which the Administrative Procedure 
Act was approved by President Truman, is notable in the history 
of the governmental process. The Act sets a pattern designed to 
achieve relative uniformity in the administrative machinery of 
the Federal Government. It effectuates needed reforms in the 
administrative process and at the same time preserves the effec- 
tiveness of the laws which are enforced by the administrative 
agencies of the Government. The members of the Seventy-Ninth 
Congress who worked so assiduously on the McCarran-Sumners- 
Walter bill showed statesmanship and wisdom in dealing with 
the difficult problems thus presented. 

The Department of Justice played an active role in the de- 
velopment of the Administrative Procedure Act. In 1938, at a 
time when there was criticism of Federal administrative agencies, 
Homer Cummings, as Attorney General, suggested to the late 
President Roosevelt that the Department of Justice be authorized 
to conduct a full inquiry into the administrative process. In re- 
sponse to this suggestion. President Roosevelt requested Attorney 
General Cummings to appoint a committee to make a thorough 
study of existing administrative procedures and to submit what- 
ever recommendations were deemed advisable. For this purpose 
the Attorney General appointed a committee of eminent lawyers, 
jurists, scholars and administrators. 

For a period of two years this committee, known as the At- 
torney General's Committee on Administrative Procedure, de- 
voted itself to the study of the administrative process. Its work 
culminated in the issuance of 27 monographs on the operations of 
the more important Government agencies it had investigated, 
as well as in a Final Report to the President and to the Congress. 
This Final Report is a landmark in the field of administrative 
law. In fact, the main origins of the present Administrative 
Procedure Act may be found in that Report, and in the so-called 
majority and minority recommendations submitted by the Com- 
mittee. These recommendations were the subject of extensive 
hearings held before a subcommittee of the Senate Committee on 
the Judiciary in 1941. 

5 



n 



D 



72 Administrative Procedure Act Appendix 



There was a lull in legislative activities in the field of admin- 
istrative law during the next few years by reason of the impact 
of war. But when Congress in 1945 resumed consideration of 
legislation in this field, the Chairmen of both the Senate and 
House Committees on the Judiciary called upon this Department 
for its assistance. The invitation was accepted, and the task was 
assigned to the Office of the Assistant Solicitor General. For 
many months the members of that Office assisted in the drafting 
and revision of the bill (S. 7) which developed into the Admin- 
istrative Procedure Act. 

Finally, in a letter dated October 19, 1945, to the Chairmen 
of both Committees on the Judiciary, I endorsed S. 7 as revised. 
I concluded that "The bill appears to offer a hopeful prospect 
of achieving reasonable uniformity and -airness in administrative 
procedures without at the same time interfering unduly with the 
efficient and economical operation of the Government." Sen. Rep. 
752, 79th Cong., 1st sess., pp. 37-38. The bill then moved in 
regular course through both Committees with a few minor 
modifications (H.R. Rep. 1980, 79th Cong., 2nd sess., p. 57). It 
was subsequently adopted by both Houses of Congress without a 
dissenting vote. 

After the Administrative Procedure Act was signed by Presi- 
dent Truman on June 11, 1946, it became evident that a major 
phase of our work had just begun. Government agencies were 
calling upon us for advice on the meaning of various provisions 
of the Act. We endeavored to furnish that advice promptly and 
in detail to every agency which consulted us. At length I decided 
that we could offer a definite service by preparing a general 
analysis of the provisions of the Act in the light of our experi- 
ence. This manual is the result of that effort. It does not purport 
to be exhaustive. It was intended primarily as a guide to the 
agencies in adjusting their procedures to the requirements of 
the Act. 

George T. Washington, the Assistant Solicitor General, was 
assigned the tasks I have just described — both the rendition of 
advice to the agencies and the preparation of the manual. He had 
assisted in drafting the Act and was familiar with the adminis- 
trative problems of the agencies. Two members of his staff, 
Robert Ginnane and David Reich, took the major burden of the 
work, under the supervision and direction of Mr. Washington and 
myself. The manner in which the task has been carried out has 
my full approval. 



Attorney General's Manual on the APA 73 



B 



While the manual was intended originally for distribution only 
to Government agencies, public demand for it has been so great 
that I have decided to make it generally available. I trust that it 
will prove helpful to those who find a need for it. 

A word of explanation as to the manner in which the manual 
is arranged should be helpful. It has been prepared mainly on a 
section by section analysis of the Act. Each of the major sections 
is treated in a separate chapter. There has been no separate 
treatment of section 11, covering the appointment of examiners, 
since the Civil Service Commission is entrusted with the respon- 
sibilities under that section and is presently engaged in working 
out the necessary requirements, assisted by an Advisory Com- 
mittee of experts designated by the Commission. No chapter as 
such is being devoted to either section 2 (definitions) or to section 
12 (construction and effect) for the reason that by themselves they 
have little meaning except in connection with the functional as- 
pects of the Act. However, there is a separate chapter on two im- 
portant phases of section 2, namely, the coverage of the Act and 
the fundamental distinction between rule making and adjudication. 

Tom C. Clark 

Attorney General 
August 27, 1947 



74 Administrative Procedure Act Appendix 



NOTE CONCERNING MANNER OF CITATION OF LEGISLATIVE MATERIAL 

The legislative history of the Administrative Procedure Act 
really begins with the Final Report of the Attorney General's 
Committee on Administrative Procedure (cited hereinafter as 
Final Report). This Report led to the introduction in Congress 
of the so-called majority and minoHty bills, respectively desig- 
nated as S. 675 and S. 67 U, 77th Cong,, 1st sess. These bills, 
together with S. 918, formed the basis for the extensive and 
valuable hearings held in 19 Al before a subcommittee of the Senate 
Committee on the Judiciary (cited hereinafter as Senate Hearings 
(1941)), In 1945, the House Committee on the Judiciary held brief 
hearings (cited hereinafter as House Hearings (1945)) on various 
administrative procedure bills, of which H,R, 1203, 79th Cong,, Ist 
sess,, was the precursor of the present Act, Also in June 19JiS, the 
Senate Committee on the Judiciary issued a comparative print, with 
comments, which is an essential part of the legislative history* 
The Committee reports on the Act are Sen, Rep, 752, 79th Cong,, 
1st sess. (cited hereinafter as Sen, Rep,), and H,R, Rep, 1980, 
79th Cong,, 2nd sess. (cited hereinafter as H,R, Rep,). In October 
1945, the Attorney General, at the request of the Senate Committee 
on the Judiciary, submitted a letter, with memorandum attached, 
setting forth the understanding of the Department of Justice 
as to the purpose and meaning of the various provisions of the 
bill (S, 7). This letter and memorandum constitute Appendix B 
of the Senate Committee Report and have been printed as Appen- 
dix B to this manual. 

There may be obtained from the Government Printing Office 
Sen. Doc. No. 248, 79th Cong., 2nd sess., entitled ** Administrative 
Procedure Act — Legislative History" (cited hereinafter as Sen. 
Doc), which contains the Senate and House debates on the 
Administrative Procedure Act, together with all the documents 
mentioned above, except the Final Report of the Attorney General's 
Committee on Administrative Procedure and the Senate Hearings 
(1941). Wherever appropriate, there will be two citations, one 
to the particular report or hearing in which the legislative mate- 
rial appears, the other a parenthetical reference to the correspond- 
ing page in the Senate Document. 



Attorney General's Manual on the APA 75 

9 

I 

FUNDAMENTAL CONCEPTS 

a. Basic Purposes of the Administrative Procedure Act 

The Administrative Procedure Act may be said to have four 
basic purposes: 

1. To require agencies to keep the public currently informed 
of their organization, procedures and rules (sec. 3). 

2. To provide for public participation in the rule making 
process (sec. 4). 

3. To prescribe uniform standards for the conduct of formal 
rule making (sec. 4(b) and adjudicatory proceedings (sec. 5), 
i.e., proceedings which are required by statute to be made on the 
record after opportunity for an agency hearing (sees. 7 and 8). 

4. To restate the law of judicial review (sec. 10). 

b. Coverage of the Administrative Procedure Act 

The Administrative Procedure Act applies, with certain ex- 
ceptions to be discussed, to every agency and authority of the 
Government. Section 2(a) of the Act reads, in part, as follows: 

"Agency" means each authority (whether or not within or subject 
to review by another agency) of the Government of the United States 
other than Congress, the courts, or the governments of the possessions. 
Territories, or the District of Columbia. Nothing in this Act shall be 
construed to repeal delegations of authority as provided by law. 

It will be seen from the above that agency is defined as 
each authority of the Government of the United States, whether 
or not within or subject to review by another agency. This 
definition was adopted in recognition of the fact that the Govern- 
ment is divided not only into departments, commissions, and 
offices, but that these agencies, in turn, are further subdivided into 
constituent units which may have all the attributes of an agency 
insofar as rule making and adjudication are concerned.^ For 
example, the Federal Security Agency is composed of many 




1 The leirislative history of section 2(a) illustrates clearly the broad scope of tne term 
"agency." In the Senate Comparative Print of June 1945, the term agency was 
explained as follows (p. 2) : "It is necessary to define agency as 'authority' rather than by 
name or form, because of the present system of including one agency within aaother or of 
authorizins internal boards or 'divisions' to have final authority. 'Authority* means any 
officer or board, whether within another agency or not, which by law has authority to take 
final and binding action with or without appeal to some superior administrative authority. 
Tliat, 'divisions' of the Interstate Commerce Commission and the judicial officers 
of the Department of Agriculture would be 'agencies' within this definition." (Sen. 
Doc. p. 13 K And in the Senate Report the following appears at pagp 10: "The word 
'authority' is advisedly used as meaning whatever persons are vested with powers to act 
(rather than the mere form of agency organization such as department, commission, 
board, or bureau) because the real authorities may be some subordinate or semidependent 
person or persons within such form of organization." (Sen. Doc. p. 196). See also H.R. 
Rep. p. 19 (Sen. Doe. p. 263). 



B 



76 Administrative Procedure Act Appendix 

10 

authorities which, while subject to the overall supervision of that 
agency, are generally independent in the exercise of their func- 
tions. Thus, the Social Security Administration within the Federal 
Security Agency is in complete charge of the Unemployment 
Compensation provisions of the Social Security Act. By virtue 
of the definition contained in section 2(a) of the Administrative 
Procedure Act, the Social Security Administration is an agency, 
as is its parent organization, the Federal Security Agency. 

The Administrative Procedure Act applies to every authority 
of the Government of the United States other than Congress, the 
courts, the governments of the possessions, Territories, and the 
District of Columbia (sec. 2(a)). The term **courts" is not limi- 
ted to constitutional courts, but includes the Tax Court, the Court 
of Customs and Patent Appeals, the Court of Claims, and similar 
courts. Sen. Rep. p. 38 (Sen. Doc. p. 408). 

While the Administrative Procedure Act covers generally all 
agencies of the United States, certain agencies and certain func- 
tions are specifically exempted from all the requirements of the 
Act with the exception of the public information requirements 
of section 3. Section 2(a) states, in part: "Except as to the 
requirements of section 3, there shall be excluded from the oper- 
ation of this Act (1) agencies composed of representatives of 
the parties or of representatives of organizations of the parties 
to the disputes determined by them, (2) courts martial and 
military commissions, (3) military or naval authority exer- 
cised in the field in time of war or in occupied territory, or (4) 
functions which by law expire on the termination of present 
hostilities, within any fixed period thereafter, or before July 1, 
1947, and the functions conferred by the following statutes: 
Selective Training and Service Act of 1940 ; Contract Settlement 
Act of 1944; Surplus Property Act of 1944; Sugar Control Exten- 
sion Act of 1947 ;2 Veterans* Emergency Housing Act^ of 1946; 
and the Housing and Rent Act of 1947.-*" 

It will be helpful to consider each of these exceptions sepa- 
rately : 

(1) "agencies composed of representatives of the parties or 
of representatives of organizations of the parties to the disputes 
determined by them." This definition is intended to embrace such 
agencies as the National Railroad Adjustment Board, composed 



2 This exception was added by Public Law SO. 80tb Conff., Ist seas. 

S This exception was added by Public Laws 663 and 719, 79th Cong., 2d sess. 

4 This exception was added by Public Law 129, 80th Cong., Ist sess. 



I 



Attorney General's Manual on the APA 

of representatives of employers and employees. In addition, it 
includes agencies which have a tripartite composition in that 
they are composed of representatives of industry, labor and the 
public, such as the Railroad Retirement Board and special fact 
finding boards. H.R. Rep. p. 19 (Sen. Doc. p. 253) ; 92 Cong. Rec. 
2152, 5649 (Sen. Doc. pp. 307, 355) . The exemption, it will be seen, 
is not limited to boards which convene only occasionally, with per 
diem compensation, to determine, arbitrate or mediate particular 
disputes, but also includes similar boards or agencies composed 
wholly or partly of full-time paid officers of the Federal Govern- 
ment. 

(2) "courts martial and military commissions." 

(3) "military or naval authority exercised in the field in time 
of war or in occupied territory." 

(4) "functions which by law expire on the termination of 
present hostilities, within any fixed period thereafter, or before 
July 1, 1947, and the functions conferred by the following statutes : 
Selective Training and Service Act of 1940; Contract Settlement 
Act of 1944; Surplus Property Act of 1944; Sugar Control Ex- 
tension Act of 1947 ; Veterans' Emergency Housing Act of 1946 ; 
and the Housing and Rent Act of 1947." The functions thus ex- 
empted on the ground of their temporary nature may be classified, 
as to their termination, as follows : 

(a) "On the termination of present hostilities" — A con- 
siderable number of statutes authorizing wartime programs and 
controls limit the duration of these functions by such phrases as 
"in time of war", "for the duration of the war", "upon cessation of 
hostilities as proclaimed by the President", "upon the termination 
of the unlimited national emergency proclaimed by the President 
on May 27, 1941", etc. It is clear from the legislative history of 
section 2(a) that the exemption is not to be limited to functions 
derived from statutes which provide for expiration "on the 
termination of present hostilities" sic, but rather extends to all 
functions which are limited as to duration by phrases such as 
those quoted above. House Hearings (1945) pp. 36-37 (Sen. Doc. 
pp. 82-83); 92 Cong. Rec., 5649 (Sen. Doc. p. 355). It is also 
clear that this exemption for temporary war functions is in 
no way affected by the circumstance that they may be con- 
tinued in existence for a considerable period of time after 
combat operations have ceased. It is well established that stat- 
utes authorizing such temporary agencies and functions remain 





78 Administrative Procedure Act Appendix 



12 



in effect until a formal state of peace is restored or some earlier 
termination date is made effective by appropriate governmental 
action. See Hamilton v. Kentucky Distilleries Co., 251 U. S. 146 
(1919) ; and the Attorney General's letter to the President, dated 
September 1, 1945, in H.R. Doc. 282, 79th Cong., 1st sess., p. 49. 
The conclusion that the exemption is not measured by the dura- 
tion of actual combat operations is confirmed by the fact that 
this Act, containing the exemption, did not become law until 
June 11, 1946. 

(b) "Within any fixed period thereafter (after the termina- 
tion of present hostilities) " — This phrase provides exemption for 
functions which terminate, for example, "six months after the 
termination of the unlimited national emergency proclaimed by 
the President on May 27, 1941." It is unnecessary to repeat the 
discussion under (a), supra, as the meaning of the phrase 
"termination of present hostilities." 

(c) "On or before July 1, 1947" — This encompasses such 
functions as expire on or before that date. 

(d) The functions conferred by the Selective Training and 
Service Act of 1940, the Contract Settlement Act of 1944, the 
Surplus Property Act of 1944, the Veterans* Emergency Housing 
Act of 1946, the Sugar Control Extension Act of 1947 and the 
Housing and Rent Act of 1947 are specifically exempted, re- 
gardless of their expiration date. Thus the War Assets Adminis- 
tration, insofar as its functions are derived from the Surplus 
Property Act, is not subject to the provision of the Act, with the 
exception of section 3. 

The foregoing agencies and functions have been specifically 
exempted from all the provisions of the Act with the exception of 
section 3. This means, in effect, that the rule making provisions 
of section 4, the adjudication provisions of section 5, and the 
judicial review provisions of section 10 are not applicable to them. 
These broad exceptions, accordingly, must be borne in mind 
in connection with the discussion of the other sections of the Act. 
Specific exceptions to various sections will be noted in the dis- 
cussion of such sections. 

c. — Distinction Between Rule Making and Adjudication 
The Administrative Procedure Act prescribes radically dif- 
ferent procedures for rule making and adjudication. Accordingly, 
the proper classification of agency proceedings as rule making or 
adjudication is of fundamental importance. 



Attorney General's Manual on the APA 79 



13 

"Rule" and "rule making", and "order" and "adjudication" 
are defined in section 2 as follows : 

(c) Rule and rule making. "Rule" means the whole or any part of 
any agency statement of general or particular applicability and future 
effect designed to implement, interpret, or prescribe law or policy or to 
describe the organization, procedure, or practice requirements of any 
agency and includes the approval or prescription for the future of 
rates, wages, corporate or financial structures or reorganizations 
thereof, prices, facilities, appliances, services or allowances therefor or 
of valuations, cost, or accounting, or practices bearing upon any of 
the foregoing. "Rule making" means agency process for the formula- 
tion, amendment, or repeal of a rule. 

(d) Order and adjudication. "Order" means the whole or any part 
of the final disposition (whether affirmative, negative, injunctive, or 
declaratory in form) of any agency in any matter other than rule 
making but including licensing. "Adjudication" means agency process 
for the formulation of an order. 

(e) License and licensing. "License" includes the whole or part of 
any agency permit, certificate, approval, registration, charter, mem- 
bership, statutory exemption or other form of permission. "Licensing" 
includes agency process respecting the grant, renewal, denial, revoca- 
tion, suspension, annulment, withdrawal, limitation, amendment, mod- 
ification, or conditioning of a license. 

Since the definition of adjudication is largely a residual one, 
i.e., "other than rule making but including licensing", it is logical 
to determine first the scope of rule making. The definition of rule 
is not limited to substantive rules, but embraces interpretative, 
organizational and procedural rules as well.^ Of particular import- 
ance is the fact that "rule" includes agency statements not only 
of general applicability but also those of particular applicability 
applying either to a class or to a single person. In either case, 
they must be of future effect, implementing or prescribing future 
law. Accordingly, the approval of a corporate reorganization by 
the Securities and Exchange Commission, the prescription of 
future rates for a single named utility by the Federal Power 
Commission, and similar agency actions, although applicable only 
to named persons, constitute rule making. H.R. Rep. p. 49, fn. 1 
(Sen. Doc. p. 283). 

As applied to the various proceedings of Federal agencies, the 
definitions of "rule" and "rule making", and "order" and "ad- 
judication" leave many questions as to whether particular pro- 
ceedings are rule making or adjudication. For example, the ques- 
tion arises whether agency action on certain types of applications 
is to be deemed rule making or licensing (adjudication), in view 
of the fact that there is apparent overlapping between the defini- 



B 



6 Note that section 4 (apart from 4(d)) is applicable only to substantive rules. I.e., 
rules isaued pursuant to statutory authority to implement statutory policy, as by fixing 
rates or defining standards. 



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80 Administrative Procedure Act Appendix 

14 

tion of "rule" in section 2(c) and of "license" in section 2(e). 
Thus, "rule" includes the "approval ♦ * * for the future * * *", and 
"license" is defined to include "any agency permit, certificate, 
approval * * * or other form of permission." 

An obvious principle of construction is that agency proceedings 
which fall within one of the specific categories of section 2(c), e.g., 
determining rates for the future, must be regarded as rule making, 
rather than as coming under the general and residual definition 
of adjudication. Furthermore, the listing of specific subjects in 
section 2 (c) as rule making is not intended to be exclusive. It is 
illustrative only. H.R. Rep. 20 (Sen. Doc. p. 254). Thus, in deter- 
mining whether agency action on a particular type of application 
is "rule making", the purposes of the statute involved and the 
considerations which the agency is required to weigh in granting 
or withholding its approval will be relevant ; if the factors govern- 
ing such approval are the same, for example, as the agency would 
be required to apply in approving a recapitalization or reorganiza- 
tion (clearly rule making) , this circumstance would tend to support 
the conclusion that agency action on such an application is rule 
making. 

More broadly, the entire Act is based upon a dichotomy between 
rule making and adjudication. Examination of the legislative 
history of the definitions and of the differences in the required 
procedures for rule making and for adjudication discloses highly 
practical concepts of rule making and adjudication. Rule making 
is agency action which regulates the future conduct of either 
groups of persons or a single person; it is essentially legislative 
in nature, not only because it operates in the future but also be- 
cause it is primarily concerned with policy considerations. The 
object of the rule making proceeding is the implementation or 
prescription of law or policy for the future, rather than the 
evaluation of a respondent's past conduct. Typically, the issues 
relate not to the evidentiary facts, as to which the veracity and 
demeanor of witnesses would often be important, but rather to 
the policy-making conclusions to be drawn from the facts. Senate 
Hearings (1941) pp. 657, 1298, 1451. Conversely, adjudication 
is concerned with the determination of past and present rights 
and liabilities. Normally, there is involved a decision as to whether 
past conduct was unlawful, so that the proceeding is characterized 
by an accusatory flavor and may result in disciplinary action. 
Or, it may involve the determination of a person's right to bene- 



Attorney General's Manual on the APA 81 

16 

fits under existing law so that the issues relate to whether he is 
within the established category of persons entitled to such bene- 
fits. In such proceedings, the issues of fact are often sharply 
controverted. Sen. Rep. p. 39 (Sen. Doc. p. 225) ; 92 Cong. Rec. 
5648 (Sen. Doc. p. 353). 

Not only were the draftsmen and proponents of the bill 
aware of this realistic distinction between rule making and ad- 
judication, but they shaped the entire Act around it. Even in 
formal rule making proceedings subject to sections 7 and 8, the 
Act leaves the hearing officer entirely free to consult with any 
other member of the agency's staff. In fact, the intermediate 
decision may be made by the agency itself or by a responsible 
officer other than the hearing officer. This reflects the fact that 
the purpose of the rule making proceeding is to determine policy. 
Policy is not made in Federal agencies by individual hearing 
examiners; rather it is formulated by the agency heads relying 
heavily upon the the expert staffs which have been hired for that 
purpose. And so the Act recognizes that in rule making the inter- 
mediate decisions will be more useful to the parties in advising 
them of the real issues in the case if such decisions reflect the 
views of the agency heads or of their responsible officers who assist 
them in determining policy. In sharp contrast is the procedure 
required in cases of adjudication subject to section 5(c). There 
the hearing officer who presides at the hearing and observes the 
witnesses must personally prepare the initial or recommended 
decision required by section 8. Also, in such adjudicatory cases, 
the agency officers who performed investigative or prosecuting 
functions in that or a factually related case may not participate 
in the making of decisions. These requirements reflect the charac- 
teristics of adjudication discussed above. 

The foregoing discussion indicates that the residual definition 
of "adjudication" in section 2(d) was intended to include such 
proceedings as the following: 

1. Proceedings instituted by the Federal Trade Commission 
and the National Labor Relations Board leading to the 
issuance of orders to cease and desist from unfair methods 
of competition or unfair labor practices, respectively. 

2. The determination of claims for money, such as compensa- 
tion claims under the Longshoremen's and Harbor Workers' 
Compensation Act, and claims under Title II (Old Age 
and Survivors' Insurance) of the Social Security Act. 



D 



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82 Administrative Procedure Act Appendix 



16 



3. Reparation proceedings in which the agency determines 
whether a shipper or other consumer is entitled to damages 
arising out of the alleged past unreasonableness of rates. 

4. The determination of individual claims for benefits, such 
as grants-in-aid and subsidies. 

5. Licensing proceedings, including the grant, denial, renewal, 
revocation, suspension, etc. of, for example, radio broad- 
casting licenses, certificates of public convenience and 
necessity, airman certificates, and the like. 



Attorney General's Manual on the APA 83 



B 



17 
II 

SECTION 3 — PUBLIC INFORMATION 

The purpose of section 3 is to assist the public in dealing with 
administrative agencies by requiring agencies to make their admin- 
istrative materials available in precise and current form. Section 
3 should be construed broadly in the light of this purpose so as 
to make such material most useful to the public. The public 
information requirements of section 3 do not supersede the 
Federal Register Act (44 U.S.C. 301 et seq.). They are to be 
integrated with the existing program for publication of mate- 
rial in the Federal Register and the Code of Federal Regulations. 
The Federal Register Regulations (11 F.R. 9833) govern the 
manner in which documents are to be prepared prior to sub- 
mission to the Division of the Federal Register. All materials issued 
under section 3(a) of the Act will be included in the Code of 
Federal Regulations and should be prepared accordingly. The 
Division of the Federal Register is prepared to offer assistance 
to the agencies in this respect. 

AGENCIES SUBJECT TO SECTION 3 

This section, unlike the other provisions of the Act, is applic- 
able to all agencies of the United States, excluding Congress, the 
courts, and the governments of the Territories, possessions, and 
the District of Columbia. Every agency, whether or not it has 
rule making or adjudicating functions, must comply with this 
section. Section 2(a), defining agencies, states specifically that 
even the exemption for the functions enumerated in the last 
sentence of that section does not extend to section 3. Accordingly, 
agencies performing temporary war functions must comply with 
this section. 

EXCEPTIONS TO REQUIREMENTS OF SECTION 3 

Two exceptions have been made to section 3, namely : 

"(1) Any function of the United States requiring secrecy in 
the public interest." This would include the confidential opera- 
tions of any agency, such as the confidential operations of the 
Federal Bureau of Investigation and the Secret Service and, in 
general, those aspects of any agency's law enforcement pro- 
cedures the disclosure of which would reduce the utility of such 




84 Administrative Procedure Act Appendix 

18 

procedures. It is not restricted, however, to investigatory func- 
tions. The Comptroller of the Currency, for example, may have 
occasion to issue rules to national banks under such circumstances 
that the public interest precludes publicity. 

It should be noted that the exception is made only "to the 
extent" that the function requires secrecy in the public interest. 
Such a determination must be made by the agency concerned. To 
the extent that the function does not require such secrecy, the 
publication requirements apply. Thus, the War Department ob- 
viously is not required to publish confidential matters of military 
organization and operation, but it would be required to publish 
the organization and procedure applicable to the ordinary civil 
functions of the Corps of Engineers. 

"(2) Any matter relating solely to the internal management 
of an agency." This exception is in line with the spirit of the 
public information requirements of section 3. If a matter is 
solely the concern of the agency proper, and therefore does not 
affect the members of the public to any extent, there is no require- 
ment for publication under section 3. Thus, an agency's internal 
personnel and budget procedures need not be published (e.g., rules 
as to leaves of absence, vacation, travel, etc.). However, in case 
of doubt as to whether a matter is or is not one of internal 
management, it is suggested that the matter be published in the 
Federal Register, assuming it does not require secrecy in the 
public interest. 

"Internal management of an agency" should not be construed 
as intra-agency only; it includes functions of internal Federal 
management, such as most of the functions of the Bureau of the 
Budget, and interdepartmental committees which are established 
by the President for the handling of internal management 
problems. 

It should be understood that the following discussion of the 
requirements of section 3 is not applicable to the above italicized 
functions since they are expressly exempted from the section. 

EFFECTIVE DATE — PROSPECTIVE OPERATION 

Section 3, which took effect on September 11, 1946, is prospec- 
tive in operation. 92nd Cong. Rec. 5650 (Sen. Doc. p. 357). It 
has no application to materials issued prior to that date. To the 
extent that an agency's procedures and organization had been 
published theretofore in the Federal Register (for example. 



Attorney General's Manual on the APA 85 



19 

formal rules of practice) , it was not necessary to republish them. 
Appropriate citations were frequently made to such previously 
published materials. Under section 3(a)(3), publication in the 
Federal Register is required of substantive rules (and statements 
of general policy and interpretations formulated and adopted by 
the agency for the guidance of the public) issued on and after 
September 11, 1946. 

The Federal Register of September 11, 1946, Part II, appear- 
ing in four sections and containing 966 pages, contains the material 
prepared by Government agencies in initial compliance with 
section 3. 

SECTION 3(a) — RULES 

Section 3(a) directs each agency to "separately state and 
currently publish in the Federal Register" its organization, 
procedures and substantive rules. 

SEPARATE STATEMENT 

The three classes of material— organizational, procedural, and 
substantive rules — must be published in the Federal Register 
under separate and appropriate headings. Such separate state- 
ment, however, should not be carried to so logical an extreme 
as to inconvenience the public. For example, if an agency grants 
public benefits, it would be proper to include in the substantive 
rules relative to those benefits a statement as to the form to be 
used in applying for such benefits and the place of filing; how- 
ever, the same procedural information must also be set forth or 
referred to in the separate statement of the agency's procedure. 
This may be accomplished by inserting in the procedural state- 
ment a notation to the effect that the procedure for obtaining 
public benefits may be found at a designated part of the sub- 
stantive rules relative to such benefits. 

DESCRIPTION OF ORGANIZATION 

Section 3(a)(1) requires that every agency shall separately 
state and currently publish in the Federal Register "(1) descrip- 
tions of its central and field organization including delegations by 
the agency of final authority and the established places at which, 
and methods whereby, the public may secure information or make 
submittals or requests!" It is only delegations of final authority 



I 



86 Administrative Procedure Act Appendix 



20 

which need be listed. In this connection, it should be noted that 
there is no requirement to list in the rules the names of specific 
individuals to whom power is delegated, unless such specific 
designation is otherwise required by law, nor is there any 
requirement that isolated instances of delegation made on an 
ad hoc basis be published. Senate Hearings (1941) p. 1329. How- 
ever, the agency should list by title the offices or officers to whom 
definite delegations of final authority have been made (e.g.. 
Claims Division of the Department of Justice, or Regional Di- 
rector of the War Assets Administration) . Under this subsection, 
it may be advisable also for agencies to state specifically the 
powers which may be exercised by persons serving in an "acting" 
capacity. 

An agency's central organization should be described by 
listing its divisions and principal subdivisions and the functions 
of each. Field organizations should be described by listing the 
location of such offices, together with a statement of their 
functions. For example, if certain field offices have authority to 
issue interpretative or advisory opinions, this should be specified 
together with a statement as to whether such opinions are sub- 
ject to review or confirmation by the agency's central or other 
office. In general, there should be a statement of the information 
which may be obtained from, and the applications or requests 
which may be filed with, the different field offices. In view of the 
last sentence of section 3(a), it is important that each agency 
state clearly the types of applications, etc., if any, which it re- 
quires to be filed with designated agency offices. 



STATEMENT OF PROCEDURES 

Section 3(a) (2) provides that every agency shall separately 
state and currently publish in the Federal Register " (2) statements 
of the general course and method by which its functions are 
channeled and determined, including the nature and requirements 
of all formal or informal procedures available as well as forms 
and instructions as to the scope and contents of all papers, reports, 
or examinations." This subsection is primarily concerned with 
the procedures by which an agency discharges its public functions 
— such as rule making, adjudication, and the administration of 
loan, grant and benefit programs. No categorical statement can 
be made as to the manner in which each agency should describe 



Attorney General's Manual on the APA 87 

"the general course and method by which its functions are chan- 
neled and determined." 

Section 3 does not require an agency to "freeze" its procedures, 
nor does it force the adoption of procedures more formal than 
those previously prevailing. An agency need not invent procedures 
where it has no reason to establish any procedures. Senate Hearings 
(1941) p. 1337. However, the agency must, in accordance with 
section 3, keep the public currently informed of changes in the 
actual procedures available. Of course, the published procedures 
of the agency may provide (subject to applicable law) for emer- 
gency or exceptional cases. 

Where there is an established procedure for the handling of 
certain functions, the routing of and responsibility for such func- 
tions may be stated with reasonable particularity. Some functions, 
however, may be exercised so seldom that it will not be practicable 
to prescribe a definite routine. In such cases, the published infor- 
mation should at least include a statement of the office to which 
inquiries may be directed. 

In brief, section 3 (a) (2) requires an agency to disclose in 
general terms, designed to be realistically informative to the 
public, the manner in which its functions are channeled and de- 
termined. In this connection, it should be remembered that matters 
of internal management are exempted from the publication re- 
quirements of section 3. 

Informal conference procedures used by an agency should be 
publicized with a view to both serving the convenience of the 
public and facilitating the agency's operations. Such procedures 
exist widely and are known to the specialized practitioners. The 
general public should be informed of their availability and as 
to how and where to take advantage of them. 

Forms for application, registration, etc., and the instructions 
accompanying such forms need not be published in full; publica- 
tion of a simple statement of the function and contents of the 
form, and of where copies of the form, if available, may be ob- 
tained, is sufficient. H.R. Rep. p. 22 (Sen. Doc. p. 256). 

Attention is called to the last sentence of the section, stating 
"No person shall in any manner be required to resort to organiza- 
ion or procedure not so published." Should an agency fail to 
publish, for example, a listing of its field offices with their func- 
tions, persons who have not received actual notice of such agency 



I 



B 



88 Administrative Procedure Act Appendix 

22 

organization may contend that they are not bound to resort to a 
field office prior to institution of their case in the central office. 

SUBSTANTIVE RULES 

Section 3(a) (3) provides that every agency shall separately 
state and currently publish in the Federal Register "(3) substan- 
tive rules adopted as authorized by law and statements of general 
policy or interpretations formulated and adopted by the agency 
for the guidance of the public, but not rules addressed to and 
served upon named persons in accordance with law." This exemp- 
tion for "rules addressed to and served upon named persons in 
accordance with law" is designed to avoid filling the Federal Reg- 
ister with a great mass of particularized rule making, such as 
schedules of rates, which have always been satisfactorily handled 
without general publication in the Federal Register. 

The phrase "substantive rules adopted as authorized by law" 
refers, of course, to rules issued by an agency to implement statu- 
tory policy. Examples are the Federal Power Commission's rules 
prescribing uniform systems of accounts and proxy rules issued 
by the Securities and Exchange Commission. 

Statements of general policy and interpretations need be pub- 
lished only if they are formulated and adopted by the agency for 
the guidance of the public. The Act leaves each agency free to 
determine for itself the desirability of formulating policy state- 
ments for the guidance of the public. To the extent that an agency, 
however, enunciates such statements of general policy in the form 
of speeches, releases or otherwise, the Act requires them to be 
published in the Federal Register. 

The term "public" would not seem to embrace states. For 
example, the Federal Security Agency sends interpretative guides 
to states to assist them in complying with the requirements of 
the Unemployment Compensation provisions of the Social Se- 
curity laws. Such guides need not be published since they are not 
for the use of the "public" but only for the state governments. 

Section 3(a) does not require publication in the Federal Reg- 
ister of statements of agency policy and interpretations which 
are developed and enunciated only in the course of adjudicatory 
orders and opinions; such orders and opinions are treated as a 
separate and distinct body of administrative materials under 
section 3(b). 

An advisory interpretation relating to a specific set of facts 



Attorney General's Manual on the APA 89 




I 



23 

is not subject to section 3. 92 Cong. Rec. 5649 (Sen. Doc. 
p. 355). For example, a reply from the agency's general 
counsel to an inquiry from a member of the public as to the appli- 
cability of a statute to a specific set of facts need not be published. 

SECTION 3(b)— OPINIONS AND ORDERS 

Section 3(b) provides that "Every agency shall publish or, 
in accordance with published rule, make available to public in- 
spection all final opinions or orders in the adjudication of cases 
(except those required for good cause to be held confidential 
and not cited as precedents) and all rules." Section 3(b) does 
not require publication of these materials in the Federal Register 
or in any other prescribed form. Regular publication of decisions 
in bound volumes or bulletins, as many agencies are now doing, 
will suffice; in such cases, however, the agency should publish 
a rule stating where copies of such orders and opinions may 
be obtained or inspected during the interval prior to publica- 
tion. It should be noted that the materials specified by section 
3(b) need not be published at all if, in accordance with the 
agency's rule published in the Federal Register pursuant to 
section 3(a)(1), they are available for public inspection. It is 
suggested that to the extent section 3(b) is complied with by 
making materials available for inspection, such inspection be 
made possible, where practicable, in regional oflfices as well as 
in the agency's central ofl[ice. 

The scope of the phrase "opinions or orders in the adjudication 
of cases" is governed by section 2(d) and, accordingly, includes 
orders or opinions issued with respect to licenses. Adjudicatory 
orders and opinions which are not "final" need not be published 
or made available for inspection. However, where intermediate 
orders and opinions would be useful to the public as, say, pro- 
cedural precedents, agencies may wish to publish them or make 
them available for inspection in the same manner as final orders 
and opinions. 

An agency may withhold from publication or inspection final 
orders and opinions "required for good cause to be held confiden- 
tial and not cited as precedents." If it is desired, however, to 
rely upon the citation of confidential materials, the agency should 
first make available some abstract of the confidential material in 
such form as will show the principles relied upon without re- 
vealing the confidential facts. 




90 AX>MINISTRATIVE PROCEDURE ACT APPENDIX 

24 

The last three words of section 3(b) "and all rules" include 
"rules addressed to and served upon named persons in accordance 
with law" which are excluded from the publication requirement of 
section 3(a) (3). See H.R. Rep. p. 50, fn. 7 (Sen. Doc. p. 284). 
Thus rules involving corporate mergers and reorganizations 
where all the parties are served need not be published in the 
Federal Register pursuant to section 3(a) ; instead the provisions 
of section 3(b) apply. It is sufficient, therefore, if such rules 
are made available for public inspection. 

SECTION 3(c) — PUBLIC RECORDS 

Section 3(c) provides that "Save as otherwise required by 
statute, matters of official record shall in accordance with published 
rule be made available to persons properly and directly concerned 
except information held confidential for good cause found." The 
introductory saving clause is intended to preserve existing statu- 
tory requirements for confidential treatment of certain materials, 
such as income tax returns. 

Each agency should publish in the Federal Register, under 3 
(a) (1), a rule listing the types of official records in its files, class- 
ifying them in terms of whether or not they are confidential in 
character, stating the manner in which information is available 
(as by inspection or sale of photostatic copies), the method of 
applying for information, and by what officials the application 
will be determined. 

The term "official record" is difficult of definition. In general, 
it may be stated that matters of official record will include (a) 
applications, registrations, petitions, reports and returns filed by 
members of the public with the agency pursuant to statute or 
the agency's rules, and (b) all documents embodying agency ac- 
tions, such as orders, rules and licenses. In formal proceedings, 
the pleadings, transcripts of testimony, exhibits, and all documents 
received in evidence or made a part of the record are "matters of 
official record." 

Section 3 (c) does not purport to define "official record." 
Each agency must examine its functions and the substantive 
statutes under which it operates to determine which of its materi- 
als are to be treated as matters of official record for the purposes 
of the section. Indicative of the types of records which are con- 
sidered official records by Congress are maps, plats, or diagrams 
in the custody of the Secretary of the Interior (5 U. S. C. 488), 



Attorney General's Manual on the AP A 9 1 



n 



25 

records, books or papers in the General Land Office (28 U. S. C. 
672), and registration statements filed with the Securities and 
Exchange Commission under the Securities Act (15 U. S. C. 77f). 

The great mass of material relating to the internal operation 
of an agency is not a matter of official record. For example, intra- 
agency memoranda and reports prepared by agency employees 
for use within the agency are not official records since they merely 
reflect the research and analysis preliminary to official agency 
action. Intra-agency reports of investigations are, in general, not 
matters of official record; in addition, they usually involve mat- 
ters of internal management and, in view of their nature, must 
commonly be kept confidential. 

But even matters of official record need be divulged only to 
"persons properly and directly concerned." It is clear that section 
3(c) is not intended to open up Government files for general in- 
spection. The phrase "persons properly and directly concerned" 
is descriptive of individuals who have a legitimate and valid 
reason for seeking access to an agency's records. See United 
States ex rel, Stowell v. Deming, 19 F. 2d, 697 (App. D.C., 1927), 
certiorari denied, 275 U.S. 531. Each agency is the primary judge 
of whether the person's interest is such as to require it to make 
its official records available for his inspection. 

An agency may treat matters of official record as "confiden- 
tial for good cause found" and upon that ground refuse to make 
them available for inspection. Information held "confidential for 
good cause found" may be either information held confidential by 
reason of an agency rule issued in advance (for good cause) 
making specific classes of material confidential, or such informa- 
tion as is held confidential for good cause found under a particular 
set of facts. The section does not change existing law as to those 
materials in Government files which have been heretofore treated 
as confidential. See Boske v. Comingore, 111 U.S. 459 (1900) ; 
Boehm v. United States, 123 F. 2d, 791. 805 (C.C.A. 8, 1941). 



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92 Administrative Procedure Act Appendix 



26 

m 

SECTION 4 — RULE MAKING 

In general, the purpose of section 4 is to guarantee to the pub- 
lic an opportunity to participate in the rule making process. With 
stated exceptions, each agency will be required under this section 
to give public notice of substantive rules which it proposes to 
adopt, and to grant interested persons an opportunity to present 
their views to it. Where rules are required by statute to be made 
on the record after opportunity for an agency hearing, the pro- 
visions of sections 7 and 8 as to hearing and decision will apply 
in place of the less formal procedures contemplated by section 
4(b). With certain exceptions, no substantive rule may be made 
effective until at least thirty days after its publication in the 
Federal Register. Section 4 also grants to interested persons the 
right to petition an agency for the issuance, amendment or repeal 
of a rule. 

EXCEPTIONS 

In addition to the agencies and functions exempted by section 
2(a), section 4 itself contains two broad exceptions to its re- 
quirements. 

"(1) any military, naval, or foreign affairs function of the 
United States'*. The exemption for military and naval functions 
is not limited to activities of the War and Navy Departments but 
covers all military and naval functions exercised by any agency. 
Thus, the exemption applies to the defense functions of the Coast 
Guard and to the function of the Federal Power Commission 
under section 202(c) of the Federal Power Act (16 U.S.C. 824a 
(c)). Sen. Rep. p. 39 (Sen. Doc. p. 225); Senate Hearings 
(1941) p. 502. 

As to the meaning of "foreign affairs function", both the 
Senate and House reports state: "The phrase 'foreign affairs 
functions,' used here and in some other provisions of the bill, 
is not to be loosely interpreted to mean any function extending be- 
yond the borders of the United States but only those *aff airs* which 
so affect relations with other governments that, for example, 
public rule making provisions would clearly provoke definitely 
undesirable international consequences.*' Sen. Rep. p. 13; H.R. 
Rep. p. 23 (Sen. Doc. pp. 199, 257). See also Representative 
Walter's statement to the House, 92 Cong. Rec. 5650 (Sen. 



Attorney General's Manual on the APA 93 



n 



27 

Doc. p. 358). It is equally clear that the exemption is not 
limited to strictly diplomatic functions, because the phrase 
"diplomatic function" was employed in the January 6, 1945 draft 
of S. 7 (Senate Comparative Print of June 1945, p. 6; Sen. Doc. 
p. 157) and was discarded in favor of the broader and more 
generic phrase "foreign affairs function". In the light of this 
legislative history, it would seem clear that the exception must be 
construed as applicable to most functions of the State Depart- 
ment and to the foreign affairs functions of any other agency. 

"(2) any matter relating to agency management or personnel 
or to public property, loans, grants, benefits, or contracts" . The 
exemption for matters relating to "agency management or per- 
sonnel" is self-explanatory and has been considered in the dis- 
cussion of "internal management" under section 3. The exemption 
of "any matter relating * * * to public property, loans, grants, 
benefits, or contracts" is intended generally to cover the "pro- 
prietary" functions of the Federal Government. 92 Cong. Rec. 
5650 (Sen. Doc. p. 358). It will be helpful to consider the 
implication of each of these phrases separately. 

Public Property, This embraces rules issued by any agency 
with respect to real or personal property owned by the United 
States or by any agency of the United States. Thus, the making of 
rules relating to the public domain, i.e., the sale or lease of 
public lands or of mineral, timber or grazing rights in such lands, 
is exempt from the requirements of section 4. The exemption 
extends, for example, to rules issued by the Tennessee Valley 
Authority in relation to the management of its properties, and 
by the Maritime Commission with respect to ships owned by the 
United States. The term "public property" includes property 
held by the United States in trust or as guardian; e.g., Indian 
property. H.R. Rep. p. 23 (Sen. Doc. p. 257). 

Loans, This exempts rules issued with respect to loans by such 
agencies as the Reconstruction Finance Corporation, the Com- 
modity Credit Corporation, and the Farm Credit Administration. 
It also exempts rules relating to guarantees of loans, such as are 
made by the Federal Housing Authority and the Veterans Admin- 
istration, since they are matters relating to public loans. 

Grants, Rule making with respect to subsidy programs is ex- 
empted from section 4. "Grants" also include grant-in-aid pro- 
grams under which the Federal Government makes payments to 
state and local governments with respect to highways, airports, 



B 



94 Administrative Procedure Act Appendix 

28 

unemployment compensation, etc. ^ 

Benefits. This refers to such programs as veterans pensions 
and old-age insurance payments. 

Contracts. All rules relating to public contracts are exempt 
from section 4. The exemption extends to wage determinations 
made by the Labor Department under the Davis Bacon Act (40 
U.S.C. 276a et seq.) and the Walsh Healey Act (41 U.S.C. 
35-45), as conditions to construction and procurement contracts 
entered into by the Federal Government. See Perkins v. Lukens 
Steel Co., 310 U. S. 113 (1940). 

SECTION 4(a) — NOTICE 

Subsections (a) and (b) of section 4 must be read together 
because the procedural requirements of subsection (b) apply only 
where notice is required by subsection (a). It is clear that the 
requirements of "general notice of proposed rule making" apply 
only to rule making proposed or initiated by an agency ; the filing 
of a petition under section 4 (d) does not require an agency to 
undertake rule making proceedings in accordance with subsections 
(a) and (b). H.R. Rep. p. 26 (Sen. Doc. p. 260). 

An agency contemplating the issuance of a rule subject to 
section 4 (a) must publish in the Federal Register a notice of the 
proposed rule making, "unless all persons subject thereto are 
named and either personally served or otherwise have actual 
notice thereof in accordance with law". The reason for the quoted 
exception is to avoid burdening the Federal Register with notices 
addressed to particular parties who have been personally served 
or otherwise have notice. H.R. Rep. p. 51, fn. 8 (Sen. Doc. 
p. 285). For example, where a proceeding is commenced to estab- 
lish rates for named carriers or utilities, if a notice complying 
with section 4(a) is personally served upon such persons, pub- 
lication in the Federal Register is not required by the subsection. 

Contents of notice. In both formal^ and informal rule making, 
the required notice, whether published in the Federal Register or 
personally served, must include the following information: 

1. "A statement of the time, place, and nature of public rule 
making proceedings". While section 4(a) does not specify how 
much notice must be given by an agency before it may conduct 
public rule making proceedings, it is presumed that each agency 

1 As used here, "formal" rule makinir means those public rule making proceedings 
which must be conducted in accordance with sections 7 and 8. 



Attorney General's Manual on the APA 95 

29 

will give reasonable notice.^ In this connection, each agency 
should take into account the fact that section 4(c) provides 
that thirty days must ordinarily elapse prior to a rule becoming 
effective. Accordingly, each agency should schedule its rule 
making in such fashion that there will be sufficient time for 
affording interested persons an opportunity to participate in the 
rule making as well as for insuring final publication of the rule 
at least thirty days prior to the desired effective date. 

The nature of public rule making may vary considerably 
from case to case. Under section 4(b) each agency, as this memo- 
randum will indicate infra, may conduct its rule making by 
affording interested persons opportunity to submit written data 
only, or by receiving a combination of written and oral evidence, 
or by adopting any other method it finds most appropriate for 
public participation in the rule making process. However, where 
an agency is required by statute to conduct a hearing and to 
reach a decision upon the basis of the record made at such hear- 
ing, the formal procedures prescribed by sections 7 and 8 must 
be pursued. Therefore, the notice, required by section 4(a) should 
specify the procedure to be employed, that is, formal or informal 
hearings, submission of written statements with or without 
opportunity for oral argument, etc. 

2. "Reference to the authority under which the rule is pro- 
posed". The reference must be sufficiently precise to apprise 
interested persons of the agency's legal authority to issue the 
proposed rule. 

3. "Either the terms or substance of the proposed rule or a 
description of the subjects and issues involved". Where able to 
do so, an agency may state the proposed rule itself or the sub- 
stance of the rule in the notice required by section 4(a). On the 
other hand, the agency, if it desires, may issue a more general 
"description of the subjects and issues involved". It is suggested 
that each agency consider the desirability of using the latter 
method if publication of a proposed rule in full would unduly 
burden the Federal Register or would in fact be less informative 
to the public. In such a case, the agency may inform interested 
persons that copies of the proposed rule may be obtained from 
the agency upon request—this, of course, in addition to the 
"description of the subjects and issues involved" in the Federal 
Register. Where there is a "description of the subjects and issues 

2 See section 8 of the Federal Register Act (44 U.S.C. 308) for a general sUtutory 
standard of reasonable notice. 




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96 Administrative Procedure Act Appendix 

30 

involved", the notice should be sufficiently informative to assure 
interested persons an opportunity to participate intelligently in 
the rule making process. Final Report, p. 108. 

Section 4(a) and (b) applicable only to substantive rules. 
The last sentence of section 4(a) exempts from the requirements 
of section 4(a) and (b), unless otherwise required by statute, 
"interpretative rules, general statements of policy, rules of agency 
organization, procedure, or practice'*. Thus, the rules of organi- 
zation and procedure which an agency must publish pursuant 
to section 3(a) (1) and (2) are not ordinarily subject to the re- 
quirements of section 4(a) and (b). The further exemption of 
"interpretative rules" and "general statements of policy" restricts 
the application of section 4(a) and (b) to substantive rules 
issued pursuant to statutory authority.^ See Senate Comparative 
Print of June 1945, p. 6 (Sen. Doc. p. 19). 

Omission of notice and public procedure for good cause. The 
last sentence of section 4(a) authorizes any agency to omit the 
notice required by that subsection (and the procedure specified by 
section 4(b)) "in any situation in which the agency for good 
cause finds . . . that notice and public procedure thereon are im- 
practicable, unnecessary, or contrary to the public interest". It 
should be noted that the reasons for which an agency may dis- 
pense with notice under section 4(a) are written in the alterna- 
tive so that if it is "impracticable" or "unnecessary" or "contrary 
to the public interest" the agency may dispense with notice. Should 
this be done, the agency must incorporate in the rule issued its 
finding of "good cause" and "a brief statement of the reasons 
therefor". In general, it may be said that a situation is "imprac- 
ticable" when an agency finds that due and timely execution of 
its functions would be impeded by the notice otherwise required 
in section 4 (a). For example, the Civil Aeronautics Board may 
learn, from an accident investigation, that certain rules as to air 
safety should be issued or amended without delay ; with the safety 
of the traveling public at stake, the Board could find that notice 



3 In this connection, the followtner workinir definitions are oflFered: 
Subatantive rules — rules, other than organizational or procedural under section 3(a) (1) and 
(2). issued by an agrency pursuant to statutory authority and which implement the statute, as, 
for example, the proxy rules issued by the Securities and Exchange Commisson pursuant to 
section 14 of the Securities Exchange Act of 1934 (15 U.S.C, 78 n). Such rules have the force 
and effert of law. 

Interpretative rules — rules or statements issued by an agency to advise the public of the agency's 
construction of the statutes and rules which it administers. See Final Report, p. 27: Senate 
Comparative Print of June 1945. p. 6 (Sen. Doc. p. 18) : Senate Hearings (1941) p. 330. 
General statements of policy — statements issued by an agency to advise the public prospectively 
of the manner in which the agency proposes to exercise a discretionary power. 



Attorney General's Manual on the APA 97 



31 

and public rule making procedures would be "impracticable", 
and ifsue its rules immediately. "Unnecessary" refers to the 
issuance of a minor rule or amendment in which the public is not 
particularly interested. Senate Hearings (1941) p. 828. "Public 
interest" connotes a situation in which the interest of the public 
would be defeated by any requirement of advance notice. For 
example, an agency may contemplate the issuance of financial 
controls under such circumstances that advance notice of such 
rules would tend to defeat their purpose; in such circumstances, 
the "public interest" might well justify the omission of notice 
and public rule making proceedings. Senate Hearings (1941) p. 812. 

SECTION 4(b) — PROCEDURES 

Informal rule making. In every case of proposed informal 
rule making subject to the notice requirements of section 4(a), 
saction 4(b) provides that "the agency shall afford interested 
persons an opportunity to participate in the rule making through 
L'ubmission of written data, views, or arguments with or without 
opportunity to present the same orally in any manner." The 
quoted language confers discretion upon the agency, except where 
statutes require "formal" rule making subject to sections 7 and 8, 
\o designate in each case the procedure for public participation in 
rule making. Such informal rule making procedure may take a 
variety of forms: informal hearings (with or without a steno- 
graphic transcript) , conferences, consultation with industry com- 
mittees, submission of written views, or any combination of these. 
These informal procedures have already been extensively employed 
by Federal agencies. Final Report, pp. 103-105. In each case, the 
selection of the procedure to be followed will depend largely upon 
the nature of the rules involved. The objective should be to assure 
informed administrative action and adequate protection to private 
interests. 

Each agency is affirmatively required to consider "all relevant 
matter presented" in the proceeding; it is recommended that all 
rules issued after such informal proceedings be accompanied by an 
express recital that such material has been considered. It is entirely 
clear, however, that section 4(b) does not require the formulation 
of rules upon the exclusive basis of any "record" made in informal 
rule making proceedings. Senate Hearings (1941) p. 444. Ac- 
cordingly, except in formal rule making governed by sections 7 
and 8, an agency is free to formulate rules upon the basis of 




B 



98 Adnhnistrative Procedure Act Appendix 



materials in its files and the knowledge and experience of the 
agency, in addition to the materials adduced in public rule 
making proceedings. 

Section 4 (b) provides that upon the completion of public 
rule making proceedings "after consideration of all relevant matter 
presented, the agency shall incorporate in any rules adopted a 
concise general statement of their basis and purpose". The re- 
quired statement will be important in that the courts and the 
public may be expected to use such statements in the interpreta- 
tion of the agency*s rules. The statement is to be "concise" and 
"general". Except as required by statutes providing for "formal" 
rule making procedure, findings of fact and conclusions of law 
are not necessary. Nor is there required an elaborate analysis 
of the rules or of the considerations upon which the rules were 
issued. Rather, the statement is intended to advise the public of 
the general basis and purpose of the rules. 

Formal rule making. Section 4 (b) provides that "Where rules 
are required by statute to be made on the record after opportunity 
for an agency hearing, the requirements of sections 7 and 8 shall 
apply in place of the provisions of this subsection." Thus, where 
a rule is required by some other statute to be issued on the basis of 
a record after opportunity for an agency hearing, the public rule 
making proceedings must consist of hearing and decision in ac- 
cordance with sections 7 and 8. The provisions of section 5 are 
in no way applicable to rule making. It should be noted that sec- 
tions 7 and 8 did not become effective until December 11, 1946, 
and, pursuant to section 12, do not apply to any public rule making 
proceedings initiated prior to that date. 

Statutes rarely require hearings prior to the issuance of rules 
of general applicability. Such requirements, where they exist, 
appear in radically different contexts. The Federal Food, Drug 
and Cosmetic Act (21 U.S.C. 301) is almost unique in that it speci- 
fically provides that agency action issuing, amending or repealing 
specified classes of substantive rules may be taken only after notice 
and hearing, and that "The Administrator shall base his order 
only on substantial evidence of record at the hearing and shall set 
forth as part of the order detailed findings of fact on which the 
order is based." Upon review in a circuit court of appeals, a tran- 
script of the record is filed, and "the findings of the Administra- 
tor as to the facts, if supported by substantial evidence, shall be 
conclusive" (21 U.S.C. 371). It is clear that such rules are 
"required by statute to be made on the record after opportunity 



Attorney General's Manual on the APA 99 



33 

for an agency hearing". Accordingly, the rule making hearings 
required by the Federal Food, Drug and Cosmetic Act, initiated 
on and after December 11, 1946, must be conducted in accordance 
with sections 7 and 8 of the Administrative Procedure Act. 

Statutes authorizing agencies to prescribe future rates (i.e., 
rules of either general or particular applicability) for public 
utilities and common carriers typically require that such rates 
be established only after an opportunity for a hearing before 
the agency. Such statutes rarely specify in terms that the agency 
action must be taken on the basis of the "record" developed in 
the hearing. However, where rates or prices are established by 
an agency after a hearing required by statute, the agencies 
themselves and the courts have long assumed that the agency's 
action must be based upon the evidence adduced at the hearing. 
Sometimes the requirement of decision on the record is readily 
inferred from other statutory provisions defining judicial re- 
view. For example, rate orders issued by the Federal Power 
Commission pursuant to the Natural Gas Act (15 U.S.C, 717) 
may be made only after hearing; upon review in a circuit court 
of appeals or the Court of Appeals for the District of Columbia, 
the Commission certifies and files with the court "a transcript of 
the record upon which the order complained of was entered", 
and the Commission's findings of fact **if supported by sub- 
stantial evidence, shall be conclusive". It seems clear that these 
provisions of the Natural Gas Act must be construed as re- 
quiring the Commission to determine rates "on the record after 
opportunity for an agency hearing". See H.R. Rep. p. 51, fn. 9 
(Sen. Doc. p. 285). The same conclusion would be reached 
with respect to the determination of minimum wages under the 
Fair Labor Standards Act (29 U.S.C. 201), which contains sub- 
stantially the same provisions for hearing and judicial review. 

The Interstate Commerce Commission and the Secretary 
of Agriculture may, after hearing, prescribe rates for carriers 
and stockyard agencies, respectively. Both types of rate orders 
are reviewable under the Urgent Deficiencies Act of 1913 (28 
U.S.C. 47). Nothing in the Interstate Commerce Act, the Packers 
and Stockyards Act, or the Urgent Deficiencies Act requires in 
terms that such rate orders be "made on the record", or provides 
for the filing of a transcript of the administrative record with 
the reviewing court, or defines the scope of judicial review. 
However, both of these agencies and the courts have long assumed 



n 



B 



100 Administrative Procedure Act Appendix 

34 

that such rate orders must be based upon the record made in the 
hearing ; furthermore, it has long been the practice under the Urgent 
Deficiencies Act to review such orders on the basis of the ad- 
ministrative record which is submitted to the reviewing court. 
United States v. Abilene & Southern Ry. Co., 265 U.S. 274 (1924) ; 
Mississippi Valley Barge Line Co. v. United States, 292 U.S. 282 
(1934) ; Acker v. United States, 298 U.S. 426 (1936). It appears, 
therefore, that rules (as defined in section 2(c) ) which are issued 
after a hearing required by statute, and which are reviewable 
under the Urgent Deficiencies Act on the basis of the evidence 
adduced at the agency hearing, must be regarded as "required 
by statute to be made on the record after opportunity for an 
agency hearing". 

With respect to the types of rule making discussed above, 
the statutes not only specifically require the agencies to hold 
hearings but also, specifically, or by clear implication, or by estab- 
lished administrative and judicial construction, require such rules 
to be formulated upon the basis of the evidentiary record made 
in the hearing. In these situations, the public rule making pro- 
cedures required by section 4(b) will consist of a hearing con- 
ducted in accordance with sections 7 and 8. 

There are other statutes which require agencies to hold 
hearings before issuing rules, but contain no language from 
which the further requirement of decision "on the record" can 
be inferred, nor any provision for judicial review on the record 
(as does the Natural Gas Act, supra) . For example, the Federal 
Seed Act (7 U.S.C. 1561) simply provides that "prior to the 
promulgation of any rule or regulation under this chapter, due 
notice shall be given by publication in the Federal Register of 
intention to promulgate and the time and place of a public 
hearing to be held with reference thereto, and no rule or regu- 
lation may be promulgated until after such hearing". See also 
the so-called Dangerous Cargoes Act (46 U.S.C. 170(9)) and 
the Tanker Act (46 U.S.C. 391a (3) ) discussed in Senate Hearings 
(1941) p. 589. In this type of statute, there is no requirement, 
express or implied, that rules be formulated "on the record". 

There is persuasive legislative history to the effect that the 
Congress did not intend sections 7 and 8 to apply to rule making 
where the substantive statute merely required a hearing. In 1941, 
a subcommittee of the Senate Committee on the Judiciary held 
hearings on S. 674 (77th Cong., 1st sess.) and other adminis- 
trative procedure bills. Section 209(d) of S. 674 provided with 



Attorney General's Manual on the APA 101 

35 

respect to rule making that "where legislation specifically requires 
the holding of hearings prior to the making of rules, formal rule- 
making hearings shall be held". Mr. Ashley Sellers, testifying 
on behalf of the Department of Agriculture, called the subcom- 
mittee's attention to the fact that in various statutes, such as 
the Federal Seed Act, in which the Congress had required hear- 
ings to be held prior to the issuance of rules, the obvious purpose 
"was simply to require that the persons interested in the proposed 
rule should be permitted to express their views". Mr. Sellers 
drew a sharp distinction between such hearing requirements and 
the formal rule making requirements of the Federal Food, Drug 
and Cosmetic Act. Senate Hearings (1941) pp. 78-81, 1515, 1520.'* 
Since this situation was thus specifically called to the subcom- 
mittee's attention, it is a legitimate inference that with respect 
to rule making the present dual requirement, i.e., "after oppor- 
tunity for an agency hearing" and "on the record", was intended 
to avoid the application of formal procedural requirements in 
cases where the Congress intended only to provide an opportunity 
for the expression of views. See Mr. Carl McFarland's statement in 
Senate Hearings (1941) pp. 1343, 1386. See also Pacific States 
Box & Basket Co. v. White, 296 U.S. 176, 186 (1935). 

Publication of procedures. Each agency which will be affected 
by section 4 should publish under section 3(a) (2) the procedures, 
formal and informal, pursuant to which the public may partici- 
pate in the formulation of its rules. The statement of informal 
rule making procedures may be couched in either specific or gen- 
eral terms, depending on whether the agency has adopted a fixed 
procedure for all its rule making or varies it according to the 
type of rule to be promulgated. In the latter instance, it would 
be suflficient to state that proposed substantive rules will be adopted 
after allowing the public to participate in the rule making process 
either through submission of written data, oral testimony, etc., 
the method of participation in each case to be specified in the 
published notice in the Federal Register. H.R. Rep. p. 25 (Sen. 
Doc. p. 259). 

SECTION 4(C) — EFFECTIVE DATES 

Section 4(c) provides that "The required publication or 
service of any substantive rule (other than one granting or recog- 




4 See, also, the statement of Actinsr Attorney General Biddle citing: examples of 
"statutes which require hearings as a part of the rule makin? procedure without imposing 
a requirement of formal adversary judicial methods". Senate Hearings (1941) p. 1468. 



B 



102 Administrative Procedure Act Appendix 



86 

nizing exemption or relieving restriction or interpretative rules 
and statements of policy) shall be made not less than thirty days 
prior to the effective date thereof except as otherwise provided 
by the agency upon good cause found and published with the 
rule/' This requirement applies regardless of whether the rules 
are issued after formal or informal procedure. 

The discussion on section 4(c) in the reports of both the 
Senate and House Committees on the Judiciary makes clear that 
the phrase "The required publication or service of any substan- 
tive rule" does not relate back or refer to the publication of 
"general notice of proposed rule making" required by section 
4(a) ; rather it is a requirement that substantive rules which 
must be published in the Federal Register (see section 3(a) (3) ) 
shall be so published at least thirty days prior to their effective 
date. Similarly, "rules addressed to and served upon named per- 
sons", when they are substantive in nature, are subject to section 
4(c). The purpose of the time lag required by section 4(c) is to 
"afford persons affected a reasonable time to prepare for the 
effective date of a rule or rules or to take any other action which 
the issuance of rules may prompt". Sen. Rep. p. 15; H.R. Rep. 
p. 25 (Sen. Doc. pp. 201, 259). 

It is possible that section 4(c) will be interpreted as amending 
the Federal Register Act so as to require, with respect to rules 
subject to section 4(c), actual publication in the Federal Register 
(or service) at least thirty days prior to their effective date, 
rather than the mere filing of such rules with the Division of the 
Federal Register as heretofore. In any event, section 4(c) applies 
only to such substantive rules as are not excepted from all the 
provisions of section 4 by its introductory clause or by section 2 (a) 
of the Act. It is clear, for example, that the effective date of rules 
issued within the scope of the functions exempted from all of the 
requirements of section 4 by the introductory clause of that section, 
will continue to be governed by section 7 of the Federal Register 
Act (44 U.S.C. 307), rather than by section 4(c) of the Admin- 
istrative Procedure Act. Thus, where an agency issues rules 
relating to public property, such rules may be made effective 
upon filing with the Division of the Federal Register. 

Also, section 7 of the Federal Register Act is not superseded 
in so far as there are involved rules granting or recognizing 
exemption or relieving restriction or interpretative rules and 
statements of policy. Thus, there still may be made effective upon 
filing with the Division of the Federal Register statements of policy 



Attorney General's Manual on the APA 103 

37 

and interpretative rules. Likewise excepted from the thirty-day 
requirement of section 4 (c) are rules ''granting or recognizing 
exemption or relieving restriction". For example, if a statute 
prohibits the doing of an act without prior agency approval and 
such approval falls within the definition of "rule" in sectioil 2(c), 
the action of the agency in approving such act, i.e., removing 
the restriction or providing an exemption, may be made effective 
without regard to the thirty-day requirement. Senate Hearings 
(1941) p. 1296. Also, the relaxation of a restrictive rule by an 
amendment, or the repeal of such a rule, would seem to be within the 
scope of the exception. The reason for this exception would appear 
to be that the persons affected by such rules are benefited by 
them and therefore need no time to conform their conduct so as to 
avoid the legal conseqences of violation. The fact that an interested 
person may object to such issuance, amendment, or repeal of a 
rule does not change the character of the rule as being one "grant- 
ing or recognizing exemption or relieving restriction", thereby 
exempting it from the thirty-day requirement. 

The requirement of publication not less than thirty days 
prior to the effective date may be shortened by an agency "upon 
good cause found and published with the rule". This discretion- 
ary exception was provided primarily to take care of the cases in 
which the public interest requires the agency to act immediately or 
within a period less than thirty days. Senate Hearings (1941) pp. 
70, 441, 588, 650, 812, 1506. Where the persons concerned request 
that a rule be made effective within a shorter period, this circum- 
stance would ordinarily constitute good cause. Also, it is clear 
from the legislative history that for good cause an agency may 
put a substantive rule into effect immediately; in such event, 
the requirement of prior publication is altogether absent, and 
the rule will become effective upon issuance as to persons with 
actual notice, and as to others upon filing with the Division of 
the Federal Register in accordance with section 7 of the Federal 
Register Act. Senate Hearings (1941) pp. 594, 599, 1340, 1455. 
Nothing in the Act precludes the issuance of retroactive rules 
when otherwise legal and accompanied by the finding required by 
section 4 (c). H.R. Rep. p. 49, fn. 1 (Sen. Doc. p. 283). 

Where an agency, pursuant to the last clause of section 4 (a) , 
omits the procedures of section 4 (a) and (b) because "notice 
and public procedure thereon are impracticable, unnecessary or 
contrary to the public interest", subsection (c) does not thereby 




D 



104 Administrative Procedure Act Appendix 

38 

become automatically inoperative. If the situation is such as to 
compel the agency, in addition, to dispense with the thirty-day 
provision, the rule should also contain the finding required by 
the last clause of section 4 (c) . 

Section 4 (c) is not intended to repeal provisions of other 
statutes which require a period of longer than thirty days between 
the issuance and effective date of certain rules. For example, the 
Cotton Standards Act authorizes the Secretary of Agriculture 
to set cotton classification standards which may not become 
effective in less than one year (7 U. S. C. 56). The thirty-day 
period prescribed by section 4(c) of the Administrative Pro- 
cedure Act does not supersede the one-year period thus required 
by the Cotton Standards Act. 

SECTION 4(d) — PETITIONS 

Section 4(d) provides that "Every agency shall accord any 
interested person the right to petition for the issuance, amend- 
ment, or repeal of a rule." Section 4(d) applies not only to 
substantive rules but also to interpretations and statements of 
general policy, and to organizational and procedural rules. It is 
applicable both to existing rules and to proposed or tentative 
rules. 

The right to petition under section 4(d) must be accorded to 
any "interested person". It will be proper for an agency to limit 
this right to persons whose interests are or will be affected by the 
issuance, amendment or repeal of a rule. 

Every agency with rule making powers subject to section 4 
should establish, and publish under section 3(a) (2), procedural 
rules governing the receipt, consideration and disposition of 
petitions filed pursuant to section 4(d). These procedural rules 
may call, for example, for a statement of the rule making action 
which the petitioner seeks, together with any data available in 
support of his petition, a declaration of the petitioner's interest 
in the proposed action, and compliance with reasonable formal 
requirements. 

If the agency is inclined to grant the petition, the nature of 
the proposed rule would determine whether public rule making 
proceedings under section 4(a) and (b) are required. However, 
the mere filing of a petition does not require the agency to grant 
it or to hold a hearing or to engage in any other public rule 
making proceedings. For example, under section 701(e) of the 



Attorney General's Manual on the APA 105 



39 

Federal Food, Drug and Cosmetic Act (21 U.S.C. 371(e)), the 
Federal Security Administrator must provide a hearing on a 
proposed rule only where an application, stating reasonable 
grounds, is made by an interested industry or a substantial por- 
tion of the industry. Section 4(d) was not intended to modify 
that statute so as to require the Federal Security Administrator 
to hold a hearing on the petition of a single individual. 

The agency need act on the petition only in accordance with 
its procedures as published in compliance with section 3(a) (2). 
The denial of a petition is governed by section 6(d). Sen. Rep. 
p. 15; H.R. Rep. p. 26 (Sen. Doc. pp. 201, 260). Accordingly, 
prompt notice of such denial should be given to the petitioner, 
together with a simple statement of the procedural or other 
grounds therefor. 

Neither the denial of a petition under section 4(d), nor an 
agency's refusal to hold public rule making proceedings thereon, 
is subject to judicial review. Sen. Rep. p. 44 (Sen. Doc. p. 
230). 

This subsection (as in the case of the preceding portions of 
section 4) does not apply to rules relating to the func- 
tions and matters enumerated in the first sentence of sec- 
tion 4. The reports of the Senate and House Committees on the 
Judiciary state that "The introductory clause exempts from all 
of the requirements of section 4 any rule making so far as there 
are involved (1) military, naval, or foreign affairs functions 
or (2) matters relating to agency management or personnel or 
to public property, loans, grants, benefits, or contracts." (Under- 
scoring supplied). Sen. Rep. p. 13; H.R. Rep. p. 23 (Sen. Doc. 
pp. 199, 257). The petition procedure of section 4(d) is not 
applicable, for example, to the rules which an agency has issued 
or is empowered to issue with respect to loans or pensions. 




I 



106 Administrative Procedure Act Appendix 



40 

IV 

SECTION 5 — ADJUDICATIONS 

Section 5, together with sections 7 and 8, governs the pro- 
cedure in formal administrative adjudication. In addition, section 
5 lists the types of adjudication which are exempted from the 
detailed procedural requirements of sections 5, 7 and 8. It is 
to be noted that the excepted types of adjudication are exempt 
from all of the provisions of section 5, as well as of sections 7 and 
8. Thus, if a particular matter is "subject to a subsequent trial of 
the law and the facts de novo in any court", subsection (d), 
authorizing agencies to issue declaratory judgments, is not ap- 
plicable. 

GENERAL SCOPE OF FORMAL PROCEDURAL REQUIREMENTS 

"Adjudication" is defined as "agency process for the formula- 
tion of an order" ; "order" is in turn defined as "the whole or any 
part of the final disposition (whether affirmative, negative, in- 
junctive, or declaratory in form) of any agency in any matter 
other than rule making but including licensing" (section 2 (d)). 
Thus, investigatory proceedings, no matter how formal, which 
do not lead to the issuance of an order containing the element of 
final disposition as required by the definition, do not constitute 
adjudication. For example, accident investigations conducted by 
the Civil Aeronautics Authority pursuant to Title VII of the 
Civil Aeronautics Act do not result in orders, and therefore do 
not involve adjudication within the meaning of section 5.^ 

After examining the definition of "rule making" in section 
2(c), it is apparent that the residual definition of "adjudication" 
in section 2 (d) might include many governmental functions, 
such as the administration of loan programs, which traditionally 
have never been regarded as adjudicative in nature and as a rule 
have never been exercised through other than business procedures. 
The exclusion of such functions from the formal procedural re- 
quirements of sections 5, 7 and 8 is accomplished by the introduc- 
tory phrase of section 5 which limits its application (and, there- 
fore, the application of sections 7 and 8) to cases of "adjudica- 
tion required by statute to be determined on the record after op- 

1 In the Senate Comparative Print of June 1946, p. 2 (Sen. Doc. p. 13). it ia stated: 
"It should be noted that the definition of agencies does not mean that all acts of such agencies 
are subject to the procedural requirements. « * * If an agency is subject to the proposal under 
this section, nevertheless it is subject thereto only to the extent that acts, rules, or orders are 
defined and not further excluded in the following sections and subsections." 



Attorney General's Manual on the APA 107 



41 

portunity for an agency hearing". It has been pointed out that 
"Limiting application of the sections to those cases in which 
statutes require a hearing is particularly significant, because there- 
by are excluded the great mass of administrative routine as well 
as pensions, claims, and a variety of similar matters in which 
Congress has usually intentionally or traditionally refrained from 
requiring an administrative hearing." Senate Comparative Print 
of June 1945, p. 7 (Sen. Doc. p. 22). 

It will be noted that the formal procedural requirements of 
the Act are invoked only where agency action "on the record after 
opportunity for an agency hearing" is required by some other 
statute. The legislative history makes clear that the word "statute" 
was used deliberately so as to make sections 5, 7 and 8 applicable 
only where the Congress has otherwise specifically required a 
hearing to be held. Senate Hearings (1941) pp. 453, 577; Senate 
Comparative Print of June 1945, p. 7 (Sen. Doc. p. 22) ; House 
Hearings (1945) p. 33 (Sen. Doc. p. 79) ; Sen. Rep. p. 40 
(Sen. Doc. p. 226); 92 Cong. Rec. 5651 (Sen. Doc. p. 359). 
Mere statutory authorization to hold hearings (e.g., "such hear- 
ings as may be deemed necessary") does not constitute such a 
requirement. In cases where a hearing is held, although not re- 
quired by statute, but as a matter of due process or agency 
policy or practice, sections 5, 7 and 8 do not apply. Senate 
Hearings (1941) p. 1456. 

Under section 5 of the Federal Trade Commission Act, for 
example, it is clear that orders to cease and desist from unfair 
methods of competition must be issued on the basis of the record 
made in the hearing which is required by that Act (15 U. S. C. 45) . 
See also section 10 of the National Labor Relations Act (29 U. S. 
C. 160). Licensing proceedings constitute adjudication by defini- 
tion and where they are required by statute to be "determined 
on the record after opportunity for an agency hearing", sections 
5, 7 and 8 are applicable. Thus, under section 15 of the Securities 
Exchange Act (15 U. S. C. 78o), the Securities and Exchange 
Commission may deny an application for broker-dealer registra- 
tion or revoke such registration after notice and opportunity for 
hearing; while the Securities Exchange Act does not expressly 
require orders of denial or revocation of registration to be made 
"on the record", such a requirement is clearly implied in the 
provision for judicial review of these orders in the circuit 
courts of appeal. Upon such review, the Commission files "a 




B 



108 Administrative Procedure Act Appendix 



42 

transcript of the record upon which the order complained of was 
entered", and "The finding of the Commission as to the facts, if 
supported by substantial evidence, shall be conclusive." (15 U. S. 
C. 78y). 

Other statutes authorizing agency action which is clearly 
adjudicatory in nature, such as the revocation of licenses, specifi- 
cally require the agency to hold a hearing but contain no pro- 
vision expressly requiring decision "on the record". For example, 
the Secretary of Agriculture may issue cease and desist orders 
under section 312 of the Packers and Stockyards Act, 1921 (7 
U. S. C. 213), only after "notice and full hearing", and these 
orders are made reviewable under the Urgent Deficiencies Act. 
The Department of Agriculture has always assumed that these 
orders must be based upon the evidentiary record made in the 
hearing, and the courts have held that upon review the validity 
of an order issued under the Packers and Stockyards Act must 
be determined upon the administrative record. Tagg Bros. & 
Moorhead v. United States, 280 U. S. 420 (1930). It seems clear 
that administrative adjudication exercised in this context is 
subject to sections 5, 7 and 8. 

A further group of statutes merely authorizes adjudicatory 
action after hearing, and contains no reference to decision "on 
the record" nor any specific provision for judicial review. Thus, 
under the United States Warehouse Act, the Secretary of Agri- 
culture may suspend or revoke warehousemen's licenses "after 
opportunity for hearing" (7 U.S.C. 246). It is believed that 
with respect to adjudication the specific statutory requirement 
of a hearing, without anything more, carries with it the further 
requirement of decision on the basis of the evidence adduced at 
the hearing.2 With respect to rule making, it was concluded, supra, 
that a statutory provision that rules be issued after a hearing, 
without more, should not be construed as requiring agency action 
"on the record", but rather as merely requiring an opportunity 
for the expression of views. That conclusion was based on the 
legislative nature of rule making, from which it was infer- 
red, unless a statute requires otherwise, that an agency hearing 
on proposed rules would be similar to a hearing before a legis- 
lative committee, with neither the legislature nor the agency being 
limited to the material adduced at the hearing. No such rationale 



t It is cl««r that nothlnr In the Administrative Procedure Act precludes private partial 
from walvinv their risht to a hearing. Similarily. an asrency is not prevented from rcQuir- 
inff parties to Indieata within a reasonable time their desire for a hearing. 



Attorney General's Manual on the APA 109 



43 



B 



applies to administrative adjudication. In fact, it is assumed that 
where a statute specifically provides for administrative adjudi- 
cation (such as the suspension or revocation of a license) after 
opportunity for an agency hearing, such specific requirement for 
a hearing ordinarily implies the further requirement of decision 
in accordance with evidence adduced at the hearing. H.R. Rep. 
p. 51, fn. 9 (Sen. Doc. p. 285). Of course, the foregoing discus- 
sion is inapplicable to any situation in which the legislative 
history or the context of the pertinent statute indicates a con- 
trary congressional intent. 

Certain licensing statutes provide that an application for a 
license may be granted or become effective upon lapse of time 
without a hearing, but that there must be an opportunity for 
hearing prior to the denial of the application. See Securities Ex- 
change Act of 1934, section 15(b), (15 U. S. C. 78o(b)) and 
Communications Act of 1934, section 309 (47 U. S. C. 309). 
Nothing in section 5 of the Administrative Procedure Act is 
intended to require hearings where such statutes now permit the 
granting of licenses without a hearing. 

Exempted adjudications. Section 5 specifically exempts from 
its provisions (and, accordingly, from the provisions of sections 
7 and 8) six types of adjudicatory functions or proceedings which 
are discussed hereafter. It is important to note that these exemp- 
tions extend to all of the provisions of section 5. Furthermore, 
the exemption is applicable even where the exempted function is 
required by statute to be exercised "on the record after oppor- 
tunity for an agency hearing". Sen. Rep. p. 16; H.R. Rep. p. 26 
(Sen. Doc. pp. 202, 260). 

1. "Any matter subject to a subsequent trial of the law and 
the facts de novo in any court". This exemption was explained in 
the reports of the Senate and House Committees on the Judiciary, 
as follows : "Where the adjudication is subject to a judicial trial 
de novo [it] is included because whatever judgment the agency 
makes is effective only in a prima facie sense at most and the 
party aggrieved is entitled to complete judicial retrial and de- 
cision." Sen. Rep. p. 16; H.R. Rep. p. 26 (Sen. Doc. pp. 202, 260). 
Exempt under this heading are certain proceedings which lead 
to reparation orders awarding damages, such as are issued by 
the Interstate Commerce Commission (49 U. S. C. 16) and the 
Secretary of Agriculture (7 U. S. C. 210) . Senate Hearings (1941) 
pp. 75, 1389, 1508. In the Senate Comparative Print of June 1945 



B 



110 Administrative Procedure Act Appendix 



(p. 8) (Sen. Doc. p. 22) the scope of the exemption was described 
as follows: 

This exception also exempts administrative reparation orders assessing 
damages, such as are issued by the Interstate Commerce Commission 
and the Secretary of Agriculture, since such orders are subject to 
trial de novo in court upon attempted enforcement. 

2. "The selection or tenure of an officer or employee of the 
United States other than examiners appointed pursuant to sec- 
tion 11". This exemption of adjudications involving the selec- 
tion and tenure of officers other than examiners was made "because 
the selection and control of public personnel has been tradition- 
ally regarded as a largely discretionary function". Sen. Rep. p. 
16; H.R. Rep. p. 26 (Sen. Doc. pp. 202, 260). There is excluded 
from this exemption the selection or tenure of "examiners ap- 
pointed pursuant to section 11"; this refers to the provision of 
section 11 that "Examiners shall be removable by the agency in 
which they are employed only for good cause established and 
determined by the Civil Service Commission * * * after oppor- 
tunity for hearing and upon the record thereof." Proceedings for 
the removal of such examiners must be conducted in accordance 
with sections 5, 7 and 8. 

3. "Proceedings in which decisions rest solely on inspections, 
tests, or elections". The reason for the exemption is that "those 
methods of determination do not lend themselves to the hearing 
process". Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). 
This exemption is applicable even though a statute requires an 
opportunity for an agency hearing; thus the words "rest solely" 
do not mean that the exemption is available only where decisions 
are based solely upon inspections, tests, or elections, without 
opportunity for hearing or other proceedings. Rather, "rest solely" 
appears to mean that the exemption shall apply where all the 
issues involved in the decision are determined mainly on the basis 
of an inspection, test, or election. The legislative history of the 
Act, commencing with the Final Report of the Attorney General's 
Committee on Administrative Procedure, pp. 36-38, suggests the 
following as examples of "proceedings in which decisions rest 
solely on inspections, tests, or elections" : 

(a) the denial of airman certificates under section 602 of 
the Civil Aeronautics Act (49 U. S. C. 552) (statute provides 
for a hearing) ; Senate Hearings (1941) pp. 602-3; 

(b) the denial or revocation of certificates of seaworthiness 
by local inspectors of the Coast Guard (46 U. S. C. 391) ; Senate 



Attorney General's Manual on the AP A 111 



B 



46 

Hearings (1941) pp. 833-4; 

(c) locomotive inspections by the Interstate Commerce Com- 
mission (45 U. S. C. 29) (statute provides for a hearing) ; Sen- 
ate Hearings (1941) pp. 833-4; 

(d) the grading of grain under the United States Grain Stand- 
ards Act (7 U. S. C. 71 et seq.) ; Senate Hearings (1941) pp. 
833-4. 

The rationale for exempting such adjudications from formal 
procedural requirements was well stated by the Attorney General's 
Committee on Administrative Procedure in the following passage : 

In all these cases, as well as in others not here described, the most 
important element in the decision is the judgment of the man who 
saw and tested the ship or grain or fruit or locomotive, or who exam- 
ined the prospective airplane pilot, or seaman, or proposed periodical. 
Formal proceedings are not, of course, impossible. A trial examiner 
could be designated; the inspector could be summoned to testify, under 
oath, concerning his observations just as a traffic officer who gives a 
driving test to an applicant for a motor operator's permit could be re- 
quired to describe the applicant's performance to a second officer who 
could, in turn, decide whether the permit should be issued. But resort 
to formal procedure in this type of administrative matter, although 
sometimes provided for as in certain of the instances noted above, is 
not desired or utilized by the person whose rights or privileges are 
being adjudicated, because it gives no added protection. The judgment 
of the inspector who examined the applicant or tested the article 
would necessarily remain the determining element in the decision, and, 
in any event, some immediate decision concerning the fitness of an 
applicant, or of an airplane, or a locomotive, or a ship, is necessary to 
protect the public interest. That cannot await a formal hearing. Nor 
would formal procedure give greater assurance of a correct decision. 
The surest way to ascertain what is the grade of grain is for a skilled 
inspector to test it; the best way to discover whether the radio equip- 
ment of a ship is in proper working order is for a radio mechanic to 
examine it and test it. (Final Report, p. 37) 

For further legislative history relating to this exemption, see 
Senate Hearings (1941) pp. 590, 602, 833. 

4. "The conduct of military, naval, or foreign affairs func- 
tions". Both Committee reports state that the section "exempts 
military, naval, and foreign affairs functions for the same reasons 
that they are exempted from section 4 ; and, in any event, rarely 
if ever do statutes require such functions to be exercised upon 
hearing." Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). 
Thus, the exercise of adjudicatory functions by the War and 
Navy Departments or by any other agency is exempt to the extent 
thf\t the conduct of military or naval affairs is involved. Senate 
Hearings (1941) pp. 502-3. The term "foreign affairs functions" 
appears to be used in the same sense as in section 4. H.R. Rep. p. 27 
(Sen. Doc. p. 261). 

5. "Cases in which an agency is acting as an agent for a 



I 



112 Administrative Procedure Act Appendix 



46 



court". This is self-explanatory. Senate Hearings (1941) pp. 422, 
474, 1457. 

6. "The certification of employee representatives". This ex- 
emption for "the certification of employee representatives such as 
the Labor Board operations under section 9(c) of the National 
Labor Relations Act, is included because those determinations 
rest so largely upon an election or the availability of an election". 
Sen. Rep. p. 16; H.R. Rep. p. 27 (Sen. Doc. pp. 202, 261). And see 
Senate Hearings (1941) pp. 260, 271. It also exempts the certi- 
fication of employee representatives by the National Mediation 
Board pursuant to section 2(9) of the Railway Labor Act (45 
U. S. C. 152). 

SECTION 5(a) — NOTICE 

The first sentence of section 5(a) provides that "Persons 
entitled to notice of an agency hearing shall be timely informed 
of— 

(1) "the time, place, and nature thereof". The subsection does 
not specify the period of notice of hearing to be given by an agency, 
other than to require "timely" notice. Whether a given period of 
time constitutes timely notice will depend upon the circumstances, 
including the urgency of the situation and the complexity of the 
issues involved in the proceeding. It is clear that nothing in the 
subsection revokes the specific provisions of other statutes as to 
the amount of notice which must be given in various proceedings. 
See generally section 8 of the Federal Register Act (44 U.S.C. 
308) and specific statutory provisions such as section 5 of the 
Federal Trade Commission Act, requiring 30 days' notice of 
hearing (15 U. S. C. 45). In addition to specifying the time and 
place of hearing, the notice should specify the nature of the hear- 
ing, e.g., whether a cease and desist order should issue. 

The last sentence of section 5(a) provides that "In fixing the 
times and places for hearings, due regard shall be had for the 
convenience and necessity of the parties or their representatives." 
This simply means that consistent with the public interest and 
the due execution of the agency's functions, each agency shall at- 
tempt to schedule hearings at times and places which will be 
convenient for the parties and their representatives. Sen. Rep. p. 
17 (Sen. Doc. p. 203). 

(2) "the legal authority and jurisdiction under which the 
hearing is to be held". The notice should contain reference to the 



Attorney General's Manual on the APA 113 



47 

agency's authority sufficient to inform the parties of the legal 
powers and jurisdiction which the agency is invoking in the 
particular case, and thus enable the parties to raise any legal issues 
they consider relevant. 

(3) "The matters of fact and law asserted". It is not required 
to set forth evidentiary facts or legal argument. All that is neces- 
sary is to advise the parties of the legal and factual issues involved. 

Responsive pleading. The second sentence of section 5(a) 
provides that "In instances in which private persons are the 
moving parties, other parties to the proceeding shall give prompt 
notice of issues controverted in fact or law ; and in other instances 
agencies may by rule require responsive pleading." In the Com- 
mittee reports, it is stated that "The second sentence of the sub- 
section applies in those cases where the agency does not control 
the matter of notice because private persons are the moving 
parties; and in such cases the respondent parties must give 
notice of the issues of law and fact which they controvert so that 
the moving party will be apprised of the issues he must sustain." 
Sen. Rep. p. 17; H.R. Rep. p. 27 (Sen. Doc. pp. 203, 261). The 
first clause of this sentence is mandatory. This provision for 
responsive pleading appears to be applicable, for example, where 
the moving party is applying for a license and the agency admits 
as parties or intervenors competitors of the applicant who are op- 
posing the application. Under section 5(a), the agency should re- 
quire such additional parties to disclose their position promptly. 
While the subsection does not specify the consequences to be at- 
tached to a party's failure so to plead, it would clearly support an 
agency rule requiring a party to answer specifically the allegations 
of the moving party, or be deemed to have admitted such allegations. 

The second sentence of section 5(a) also provides that "in 
other instances agencies may by rule require responsive plead- 
ing". "In other instances" apparently refers to cases in which 
the agency, rather than a private party, is the moving party. 
Thus, the quoted clause authorizes an agency, in adjudicatory 
proceedings which it has initiated, such as for the suspension or 
revocation of licenses, to require the respondent to plead respon- 
sively, i.e., to "give prompt notice of issues controverted in fact 
or law". 

SECTION 5(b) — PROCEDURE 

Section 5(b) provides that "The agency shall afford all inter- 
ested parties opportunity for (1) the submission and considera- 



I 



1 14 Administrative Procedure Act Appendix 



48 

tion of facts, arguments, offers of settlement, or proposals of 
adjustment where time, the nature of the proceeding, and the 
public interest permit, and (2) to the extent that the parties 
are unable so to determine any controversy by consent, hearing,^ 
and decision upon notice and in conformity with section 7 and 8." 
The settlement of cases and issues by informal methods is noth- 
ing new in Federal administrative procedure. In its Final Report, 
the Attorney General's Committee on Administrative Procedure 
pointed out (p. 35) that "even where formal proceedings are 
fully available, informal procedures constitute the vast bulk of 
administrative adjudication and are truly the lifeblood of the 
administrative process". 

Like section 5 generally, subsection 5(b) applies only to cases 
"of adjudication required by statute to be determined on the 
record after opportunity for an agency hearing". The purpose of 
this subsection is to provide, so far as practicable, for the in- 
formal settlement or adjustment of controversies in lieu of formal 
adjudicatory proceedings. Section 5(b), however, does not re- 
quire agencies to settle informally all cases which the parties desire 
to settle. Rather it requires the agencies to make available oppor- 
tunities for such settlements, "where time, the nature of the 
proceeding, and the public interest permit". 

Agencies must in some way provide opportunities for in- 
formal disposition of controversies. However, the precise manner 
in which such opportunities are to be afforded has been deliber- 
ately left by Congress to development by the agencies them- 
selves. See Senate Comparative Print of June 1945, p. 9 (Sen. 
Doc. p. 24). The subsection apparently leaves the agencies free 
to provide such opportunity either before or after the initiation 
of a formal proceeding (e.g., the issuance of a complaint). 
If the opportunity is to be made available prior to the issuance 
of a complaint or notice, the agency must in some way advise 
the parties that formal proceedings are contemplated. In such 
a situation, the agency should advise the party at some pre- 
liminary stage (investigatory or otherwise) that it is contem- 
plating the initiation of a formal proceeding and that it is 
giving him an opportunity to settle or adjust the matter. Where 
the opportunity is made available after the issuance of a notice 
or complaint, it is sufficient if the agency's published procedures 



3 The comma after "hearing" in section 5(b) b a printer's error. 



Attorney General's Manual on the APA 115 

49 

advise parties as to how an informal settlement or adjustment may 
be sought. 

Whether such opportunity is provided before or after the initia- 
tion of the formal proceeding, it should enable parties to present 
their proposals for settlement to responsible officers or employees 
of the agency. Since section 5(b) does not prescribe adjustment 
procedures, they may consist entirely of oral conferences or 
agencies may require proposals for adjustment or settlement to 
be submitted in writing. If proposals are submitted and they are 
unsatisfactory, the agency should consider the advisability of 
informing the parties involved of the conditions, if any, on which 
the agency is willing to settle the controversy or accept compliance 
without formal proceedings. It is clear that section 5(b) does 
not require an agency to defer formal proceedings indefinitely 
while parties submit a series of proposals for the purpose of 
delay. 

In the settlement of cases pursuant to section 5(b), agencies 
may, as heretofore, require parties to enter into consent decrees 
or orders or stipulations to cease and desist as a part of the 
settlement. As Representative Walter stated : "The settlement by 
consent provision is extremely important because agencies ought 
not to engage in formal proceedings where the parties are perfect- 
ly willing to consent to judgments or adjust situations informally." 
[Italics supplied] 92 Cong. Rec. 5651 (Sen. Doc. p. 361). 
Final Report, pp. 41-42. 

The requirement of section 5(b) that agencies provide oppor- 
tunity for informal settlement is limited to cases "where time, the 
nature of the proceeding, and the public interest permit". The 
quoted language is to be treated in the alternative. Where an 
agency is confronted with the necessity for emergency action or 
where a statutue requires that a hearing be held within a limited 
period of time, the agency may be obliged to limit or refuse 
opportunity for informal settlement. The "nature of the pro- 
ceeding'* may be said to preclude negotiation in situations where 
the party has declared that he does not intend to comply with a 
known requirement of the agency or where statutes require that 
hearings be held in any event."* Senate Hearings (1941) p. 1474. 
Where an agency believes that the informal settlement of an al- 
leged violation or certain classes of violations will not insure 
future compliance with law, it would be justified in concluding that 



fl 



4 For example, the Civil Aeronautics Board is required to hold hearings before ffrantlnc 
% certiflc«te of public convenience and necessity for a new route (49 U. S. C. 481). 




1 16 Administrative Procedure Act Appendix 



50 



such settlement by consent would not be in the public interest. 

Each agency should make public, pursuant to section 3(a), 
the manner in which it will provide interested parties an op- 
portunity for the informal settlement or adjustment of the matters 
in issue. H.R. Rep. p. 27 (Sen. Doc. p. 261). 

SECTION 5(C) — SEPARATION OF FUNCTIONS 

Section 5(c) generally requires each agency, in the adjudica- 
tion of cases subject to section 5, to establish an internal separa- 
tion of functions between the officials who hear and decide and 
those who investigate or prosecute. The discussion will be simpli- 
fied if the exceptions from the requirements of section 5(c) are 
considered first. 

Exceptions. Section 5(c), like the rest of section 5, applies 
only to cases of adjudication "required by statute to be deter- 
mined on the record after opportunity for an agency hearing", 
and if the subject matter of the proceeding is not exempted by 
the first paragraph of section 5. Rule making, of course, is not 
subject to section 5(c). Section 5(c), in addition, provides that 
the provisions of that subsection "shall not apply in determining 
applications for initial licenses or to proceedings involving the 
validity or application of rates, facilities, or practices of pub- 
lic utilities or carriers". 

Section 5(c) does not apply to agency proceedings to deter- 
mine applications for initial licenses — regardless of whether the 
agency grants or denies the license. "License" is defined in section 
2(d). The phrase "initial license" must be interpreted from the 
context and legislative history. 

The Administrative Procedure Act is based upon a broad and 
logical dichotomy between rule making and adjudication, i.e., 
between the legislative and judicial functions. See Chapter I. 
The legislative history of section 5(c) reveals that "deter- 
mining applications for initial licenses" was exempted from the 
requirements of the subsection on the ground that such pro- 
ceedings are similar to rule making. In the Committee reports, 
it is explained that "The exemption of applications for initial 
licenses frees from the requirements of the section such matters 
as the granting of certificates of convenience and necessity, upon 
the theory that in most licensing cases the original application 
may be much like rule making. The latter, of course, is not sub- 
ject to any provision of section 5." Sen. Rep. p. 17 ; H.R. Rep. p. 



Attorney General's Manual on the APA 117 



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51 



30 (Sen. Doc. pp. 203, 262). The rationale for the exemption was 
further developed by Representative Walter on the floor of the 
House, as follows: "However, the subsection does not apply in 
determining applications for initial licenses, because it is felt that 
the determination of such matters is much like rule making 
and hence the parties will be better served if the proposed decis- 
sion — later required by section 8 — reflects the views of the re- 
sponsible oflficers in the agencies whether or not they have actually 
taken the evidence.'* 92 Cong. Rec. 5651 (Sen. Doc. p. 361). 

In view of the function of the exemption, the phrase "applica- 
tion for initial licenses" must be construed to include applications 
by the licensee for modifications of his original license. In effect, 
this gives full meaning to the broad definition of "license" in 
section 2(e), i.e., "the whole or part of any agency permit, certifi- 
cate, approval, registration, charter, membership, statutory ex- 
emption or other form of permission''. [Italics supplied] In 
other words, the definition clearly suggests that any agency 
"approval" or "permission" is a license, regardless of whether it 
is in addition to or related to an earlier license.^ Only by such a 
construction can the appropriate procedures be made applicable 
to those aspects of licensing which are dominated by policy mak- 
ing considerations and in which accusatory and disciplinary factors 
are absent. Senate Hearings (1941) p. 1451. In this way, the 
basic dichotomy of the Act between rule making and adjudication 
is preserved, because section 5(c) will remain applicable to li- 
censing proceedings involving the renewal, revocation, suspension, 
annulment, withdrawal or the agency-initiated modification or 
amendment of licenses — i.e., all those phases of licensing in which 
the accusatory or disciplinary factors are, or are likely to be, 
present. 

This interpretation of the scope of the exemption is consis- 
tent with the remainder of its legislative history. When the ad- 

5 Any other interpretation of the exemptioi will largely destroy it and will result in an 
erratic application of section 5(c). For example, the function of the Civil Aeronautics 
Board With respect to certificates of public convenience and necessity increasingly relates 
to applications for modifications or extensions of existing routes rather than to original 
applications for entirely new routes. Thus. A. with a certificate for a route from 
New York to Chicago with a stop at Cleveland, may apply for a modification of the 
certificate to permit an additional stop at Pittsburgh. The considerations involved in 
determining such an apph'cation for modification of A's certificate are the same as those in- 
volved in his original application— traffic flow, availability of facilities, effect on com- 
peting carriers, et". The accusatory and disciplinary elements are entirely lacking. Another 
example clearly illustrates the inconsistent results of such a narrow construction of the 
exemption for initial licensing: A his a certificate for a route from New York to St. Louis, 
and he applies for a modification which will authorize extension of the route to Omaha : B 
applies for a new certificate authorizing him to operate a route between St. Louis and 
Omaha. Under the narrow construction of the exemption, section 6(c) would apply to 
the Board's determination of A's application, but would not bp applicable with respect to 
B s application. Similar anomalies would exist under the Federal Power Act, the Communi- 
cations Act find the Natural Gas Act. particularly the latter. 



I 



118 Administrative Procedure Act Appendix 



62 

ministrative procedure bill (S. 7) was introduced by Senator 
McCarran in January 1945, the provision that was then section 
5(b) contained an exemption for ''determining applications for 
licenses". When S. 7 was reported by the Senate Committee on the 
Judiciary in November 1945, section 5(c) contained the present 
language exempting "determining applications for initial licenses". 
In the discussion of the definitions of "adjudication" and "licensing" 
in the Committee reports, it is stated that "Licensing is specifically 
included [in adjudication] to remove any question, since licenses 
involve a pronouncement of present rights of named parties al- 
though they may also prescribe terms and conditions for future 
observance. Licensing as such is later exempted from some of the 
provisions of sections 5, 7 and 8 relating to hearings and deci- 
sions. * ♦ ♦ Later provisions of the bill distinguish between 
initial licensing and renewals or other licensing proceedings" 
[Italics supplied] Sen. Rep. p. 11; H.R. Rep. p. 20 (Sen. 
Doc. pp. 197, 254). It is apparent from the legislative history that 
the word "initial" was inserted in the exception to distinguish 
original applications for licenses, i.e., any agency "approval" or 
"permission", from applications for renewals of licenses. This 
is entirely consistent with the underlying analogy of initial licens- 
ing to rule making, because renewal proceedings frequently in- 
volve a review of the licensee's past conduct and thus resemble 
adjudication rather than rule making. 

The insertion of "initial" similarly distinguishes applications 
for licenses from modifications or limitations imposed by an agency 
upon an existing license. Thus, the Senate Committee Report also 
contains a memorandum from the Attorney General in which it is 
stated that "The section does apply, however, to licensing, with 
the exception that section 5(c), relating to the separation of 
functions, does not apply in determining applications for initial 
licenses, i.e., original licenses as contradistinguished from re- 
newals or amendments of existing licenses." Sen. Rep. p. 40 (Sen. 
Doc. p. 226). In referring to "amendments", the quoted language 
contemplated amendments or modifications imposed by the agency 
on the ground that in such proceedings, as in renewal proceedings, 
the issues would often relate to the licensee's past conduct. 

It is concluded, therefore, that the exemption from the pro- 
visions of section 5(c) of proceedings to determine "applications 
for initial licenses" extends not only to applications for original 



Attorney General's Manual on the APA 119 



q 



53 

licenses but also to applications by licensees for modification of 
licenses. 

The exception of "proceedings involving the validity or applica- 
tion of rates, facilities, or practices of public utilities or carriers" 
originally read "in determining * ♦ * the past reasonableness 
of rates". See S. 7, 79th Cong. 2nd sess., as passed by the Senate 
on March 12, 1946. H.R. Rep. p. 52 (Sen. Doc. p. 286). The 
exemption was apparently created on the ground that questions 
as to the past reasonableness of rates are sometimes consolidated 
with the making of future rates — a rule making function — and 
that the exception would encourage such consolidation. In the 
House, the exemption was broadened to include the validity or 
application of facilities and practices on the theory that such 
matters also are often consolidated with rule making. H.R. Rep. 
pp. 30, 52 (Sen. Doc. pp. 262, 286). However, it should be noted 
that the Act itself dr.es not limit the exception to cases where 
there is consolidation with rule making proceedings. 

Hearing officers. The first sentence of section 5(c) provides 
that "The same officers who preside at the reception of eviHerce 
pursuant to section 7 shall make the recommended decision or 
initial decision required by section 8 except where such officers 
become unavailable to the agency.'* Section 8(a) provides that in 
cases in which the agency has not presided at the reception of the 
evidence, the officer who presided (or, in cases not subject to sec- 
tion 5(c), such as initial licensing, any other officer or officers 
qualified to preside at hearings pursuant to section 7) shall make 
the initial decision or recommended decision as the case may be. 
Thus, apart from the exceptions referred to above, the officer who 
presides at the adjudicatory hearing and hears the evidence must 
prepare the initial or recommended decision, as the case may be. 
unless he becomes unavailable (as by illness or leaving the 
agency). Where the hearing officer becomes unavailable to the 
agency, the agency may itself complete the hearing or substitute 
another hearing officer to do so. 

The second and third sentences of section 5(c) make pro- 
vision for the separation of the functions of hearing and de- 
cision from the functions of investigation and prosecution. The 
second sentence of section 5(c) provides that: 

Save to the extent required for the disposition of ex parte matters as 
authorized by law, no such officer shall consult any person or party on 
any fact in issue unless upon notice and opportunity for all parties to 
participate; nor shall such officer be responsible to or subject to the sup- 



I 



120 Administrative Procedure Act Appendix 



64 



ervision or direction of any officer, employee, or agent engaged in the 
performance of investigative or prosecuting functions for any agency. 

The third sentence provides: 

No officer, employee, or agent engaged in the performance of inves- 
tigative or prosecuting functions for any agency in any case shall, 
in that or a factually related case, participate or advise in the deci- 
sion, recommended decision, or agency review pursuant to section 8 
except as witness or counsel in public proceedings. 

It is thus apparent that the second sentence applies generally 
to the hearing process or the making of the record ; the third, to 
the decisional process or the making of the initial or recommended 
decision by the hearing officer. The broad purpose of the second 
sentence is to assure that hearings be conducted by hearing officers 
who have not received or obtained factual information outside 
the record and who are neither supervised nor directed in the 
conduct of the hearing by agency officials engaged in the per- 
formance of investigative or prosecuting functions. To achieve 
fairness and independence in the hearing process it is first pro- 
vided that (except for ex parte matters) no hearing officer "shall 
consult any person or party on any fact in issue unless upon 
notice and opportunity for all parties to participate". That is, 
the officer is prohibited from obtaining or receiving evidentiary 
or factual information bearing on the issues unless, after notice, 
all parties are permitted to participate. This would apply as well 
to expert testimony ; the officer may not informally obtain evident- 
iary material from such experts either during or after the hearing, 
any more than he may from other witnesses. 

The broad purpose of the third sentence is to insure that 
hearing officers make initial or recommended decisions free from 
the participation or advice of agency personnel engaged in the 
performance of investigative or prosecuting functions in that 
or a factually related case.^ As to the decisional process it is 
clear that, to insure the separation of the functions of hearing 



6 The limitation of the prchibition ai^ainst consultation to those who performed In- 
veatiffative or prosecuting functions "in that or a factually related case", should ~ be con- 
strued literally. As this provision originally appeared in H.R. 1203. 79th Cong., 1st sess. 
(1946), it was a complete prohibition asainst consultation with investigative and prose- 
cuting personnel, as follows : "No officer, employee, or agent engaged in the performance 
of investigative or prosecuting functions for any agency shall participate or advise in the 
decision, recommended decision, or agency review pursuant to section 8 except as 
witness or counsel in public proceedings." See Sen. Doc. p. 157. 

The phrase "factually related case" connotes a situation in which a party is faced 
with two different proceedings arising out of the same or a connected set of facts. For 
example, a particular investigation may result in the institution of a cease and desist 
proceeding against a party as well as a proceeding involving the revocation of his license. 
The employees of the agency engaged in the investigation or prosecution of such a cease 
and desist proceeding would be precluded from rendering any assistance to the agency, 
not only in the decision of the cease and desist proceeding, but also in the decision of the 
revocation proceeding. However, they would not be prevented from assisting the agency 
in the decision of other cases (in which they had not engaged either as investigators or 
prosecutors) merely because the facts of these other cases may form a pattern similar to 
those which they had theretofore investigated or prosecuted. 



Attorney General's Manual on the APA 121 



66 




and decision from the functions of investigation and prosecution 
and to insure the independence of the hearing officer, he may not 
consult or receive advice from any employee of the agency who is 
engaged in the performance of investigative or prosecuting func- 
tions in that or a factually related case. Likewise, under funda- 
mental principles of due process, he may not receive advice or 
opinions from private parties or their counsel, unless, after notice, 
all parties are permitted to participate. 

Further, it is manifest from the third sentence of section 
5(c) that the hearing officer may obtain advice from or consult 
with agency personnel not engaged in investigative or prosecu- 
ting functions in that or a factually related case. The agency 
personnel in question may include, for example, the agency 
heads, the supervisors of the hearing officers, and persons as- 
signed to assist the hearing officer in analyzing the record. Per- 
mitting the hearing officer to engage with appropriate agency 
personnel in an analytical discussion of the record is thoro- 
ughly consistent with the purposes of the Act. A principal pur- 
pose is that the hearing be followed by an initial or recommended 
decision proposed by the hearing officer which will focus the 
parties' attention upon the issues and conclusions of law, fact 
and policy which, in the hearing officer's judgment, govern the 
case. The availability to the hearing officer of appropriate 
assistance and advice will result normally in a more ac- 
curate initial or recommended decision and one that better reflects 
the views of the agency on questions of law and policy. Thus, the 
parties are better advised on the real issues that must be met in 
the subsequent procedure before final decision. See Senate Hearings 
(1941) pp. 266, 465, 646, 662, 836, 1487. 

The exemption for the "disposition of ex parte matters as au- 
thorized by law" would permit the hearing examiner to act with- 
out notice on such matters as requests for adjournments, continu- 
ances, and the filing of papers. Sen. Rep. p. 17; H.R. Rep. p. 30 
(Sen. Doc. pp. 203, 262). Also, it would apparently permit an 
examiner to act ex parte on requests for subpenas. 

The independence of hearing officers is further assured by 
the requirement that they shall not "be responsible to or sub- 
ject to the supervision or direction of any officer, employee, or 
agent engaged in the performance of investigative functions for 
any agency". As a practical matter this means that an agency's 
hearing examiners should be placed in an organizational unit 




122 Administrative Procedure Act Appendix 



66 



apart from those to which investigative and prosecuting person- 
nel are assigned, and that the examiners' unit should be under the 
supervision only of the agency itself or of agency officers who 
exercise no investigative or prosecuting functions. For example, 
if the agency's general counsel supervises the investigation and 
prosecution activities of the agency, the examiners' unit should 
not be subject to his supervision or control. However, section 
5(c) would not prevent the trial examiners from being under the 
supervision of the general counsel where in fact the supervision of 
investigative and prosecuting functions is exercised by an associ- 
ate or assistant general counsel who has no responsibility to the 
general counsel for such functions but is responsible therefor 
directly to the agency. 

It is clear that nothing in the separation of functions require- 
ments of section 5(c) is intended to preclude agency officials, re- 
gardless of their functions, from participating in necesary admini- 
strative arrangements, such as the efficient scheduling of hearings. 

The agency. The third sentence of section 5(c) provides that 
"No officer, employee, or agent engaged in the performance of 
investigative or prosecuting functions for any agency in any case 
shall, in that or a factually related case, participate or advise in 
the decision, recommended decision, or agency review pursuant 
to section 8 except as witness or counsel in public proceedings." 
Thus, on "agency review", the agency heads, as well as the 
hearing examiner, will be precluded from consulting or obtaining 
advice from any officer or employee with respect to any case in 
which, or in a factually related case,"^ such officer or employee has 
participated in the investigation or prosecution. In other words, 
the views of officials who investigated and prosecuted the case (or 
a factually related case) must be presented to hearing examiners 
and to agency heads in the public proceedings, i.e., hearings or 
oral argument, or by requested findings, exceptions, and briefs 
which are served upon the parties. Before discussing the scope of 
these requirements, it will be useful to consider some aspects of 
the administrative process. 

The expertise of an administrative agency is not limited to 
the heads of the agency; it includes also the staff of specialists 
through whom and with whose assistance most of the agency's 
functions are carried on. The issues in adjudicatory cases, while 



7 See discvwaioD of "factually related case" in footnote 6. 



Attorney General's Manual on the APA 123 




57 

frequently less complex and with narrower policy implications 
than are often involved in rule making, present in many cases 
difficult questions of law and policy. The determination of whether 
an industry-wide trade practice violates the Federal Trade Com- 
mission Act, or whether a certain series of stock market trans- 
actions constitute unlawful manipulation, often involves im- 
portant and difficult issues. In determining such issues, agency 
heads have consulted with their principal advisers and special- 
ists. Indeed, it is clearly in the public interest that they con- 
tinue to do so. Section 5(c) does not purport to isolate the 
agency heads from their staffs. Rather, in the interest of fair 
procedure, it merely excludes from any such participation in the 
decision of a case those employees of the agency who have had 
such previous participation in an adversary capacity in that or a 
factually related case that they may be "disabled from bringing 
to its decision that dispassionate judgment which Anglo-American 
tradition demands of officials who decide questions". Final Re- 
port, p. 56. 

An agency officer or employee may not participate or advise 
in the decision, recommended decision, or agency review of an 
examiner's initial decision if in that or a factually related case he 
performed investigative or prosecuting functions. For example, 
if the agency's general counsel or chief accountant engages in the 
performance of investigative or prosecuting functions in a case, 
he becomes unavailable to the agency for consultation on the de- 
cision of that or a factually related case. Of course, he could 
always present his views as witness or counsel in the public pro- 
ceedings, including the filing of briefs. 

Assuming that an agency will in many cases wish to con- 
sult with certain of its staff members, it may proceed in one of 
two ways. It may in a particular case consult with staff members 
who in fact have not performed investigative or prosecuting 
functions in that or a factually related case. In the alternative, 
the agency may find it feasible so to organize its staff assign- 
ments that the staff members whom it most frequently desires to 
consult will be free of all investigative and prosecuting functions. 
The latter method appears to offer two distinct advantages, 
particularly where the agency has a considerable volume of cases 
subject to section 5(c). 

First, using the agency's general counsel for an example : If 



B 



124 Admnistrative Procedure Act Appendix 



58 

the investigation and prosecution of adjudicatory cases are per- 
formed by the legal division under his supervision, it could be 
argued that his personal consideration of the routine cases has 
been so limited that he should be permitted to advise the agency 
in the decision of such cases. Even assuming that this is per- 
mitted by section 5(c), it would seem to be immaterial since his 
counsel will not be particularly needed in the routine cases. It is in 
the difficult and novel cases that the agency most needs his advice, 
and it is in these cases that he is most likely to be consulted 
extensively by his subordinates. Thus, he becomes unavailable to 
advise the agency in the very cases in which his advice would be 
most useful. On the other hand, if the agency so organizes its 
staff that the general counsel is not responsible for the investiga- 
tive and prosecuting functions, he would be regularly available 
to the agency for consultation on the decision of cases.^ 

Second, if an agency thus organizes its staff and, accordingly, 
identifies the officers with whom it is free to consult in the decision 
of cases subject to section 5(c), these matters can be spelled out 
in the agency's published rules of procedure. Such publication 
would, in effect, inform the public of the identity (by title or group) 
of the staff members who advise in the decision of such cases. 
In any litigation on the issue of compliance with section 5(c), the 
published rules, embodying an organization and division of func- 
tions in the light of section 5(c), would assist in establishing 
proof of compliance with the separation of functions requirements. 

The last sentence of section 5(c) sets forth certain exemptions 
from the requirements of the subsection. These have already been 
discussed, except the provision that "nor shall it be applicable in 
any manner to the agency or any member or members of the body 
comprising the agency". It was pointed out that this exemption 
"of the agency itself or the members of the board who comprise 
it — is required by the very nature of administrative agencies, 
where the same authority is responsible for both the investigation- 
prosecution and the hearing and decision of cases". Sen. Rep. p. 
18; H.R. Rep. p. 30 (Sen. Doc. pp. 204, 262). Thus, if a member 
of the Interstate Commerce Commission actively participates in 
or directs the investigation of an adjudicatory case, he will not 
be precluded from participating with his colleagues in the de- 
cision of that case. Sen. Rep. p. 41 (Sen. Doc. p. 227). 



8 The general counsel's participation in rule making and in court litiiration would be 
entirely compatible with his role in adviainff the agency in the decision of adjudicatory case* 
•abject to bmUod 6(c). 



Attorney General's Mantjal on the APA 125 

59 

SECTION 5(d) — DECLARATORY ORDERS 

Section 5(d) provides that "The agency is authorized in its 
sound discretion, with like effect as in the case of other orders, to 
issue a declaratory order to terminate a controversy or remove 
uncertainty." The purpose of section 5(d), like that of the 
Declaratory Judgment Act (28 U.S.C. 400), is to develop pre- 
dictability in the law by authorizing binding determinations 
"which dispose of legal controversies without the necessity of any 
party's acting at his peril upon his own view". Final Report, p. 
30. 

This grant of authority to the agencies to issue declaratory 
orders is limited by the introductory clause of section 5 so that 
such declaratory orders are authorized only with respect to mat- 
ters which are required by statute to be determined "on the record 
after opportunity for an agency hearing". In addition, if the 
subject matter falls within one of the numbered exceptions in the 
introductory clause of section 5, such as a matter in which an 
agency is acting as an agent for a court, section 5(d) does not 
apply. Sen. Rep. p. 18; H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263). 
For example, where an agency is authorized after hearing to 
issue orders to cease and desist from specified illegal conduct, 
it may, under section 5(d), if it otherwise has jurisdiction, 
issue a declaratory order declaring whether or not specified 
facts constitute illegal conduct. On the other hand, while the 
Securities and Exchange Commission has long issued informal 
advisory interpretations through its principal officers as to 
whether a proposed issue of securities would be exempt from 
the registration requirements of the Securities Act, there is no 
statutory agency hearing procedure in which this question can be 
determined; if securities are sold without registration and the 
Commission believes that registration was required, it can only 
institute civil or criminal proceedings. Accordingly, section 5(d) 
does not authorize the Commission to issue declaratory orders as 
to whether particular securities must be registered under the 
Securities Act.^ 

Agencies are authorized in their "sound discretion" to issue 
declaratory orders. They are not required to issue such orders 
merely because request is made therefor. Sen. Rep. p. 18; 
H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263). By "sound dis- 



9 Of course, this does not afTect the Securities and Exchange Commission's advisory 
service described above. 



I 



126 Administrative Procedure Act Appendix 



60 



cretion", it is meant that agencies shall issue declaratory orders 
only under such circumstances that both the public interest and 
the interest of the party are protected. Thus, "a necessary condi- 
tion of its [declaratory order] ready use is that it be employed 
only in situations where the critical facts can be explicity stated, 
without possibility that subsequent events will alter them. This 
is necessary to avoid later litigation concerning the applicability 
of a declaratory ruling which an agency may seek to disregard be- 
cause, in its opinion, the facts to which it related have changed". 
Final Report, p. 32. Again, since the issuance of declaratory orders 
is a matter of sound discretion, it is clear that an agency need not 
issue such orders where it appears that the questions involved will 
be determined in a pending administrative or judicial proceeding, 
or where there is available some other statutory proceeding which 
Will be more appropriate or effective under the circumstances. 
More broadly, it appears that "The administrative issuance of 
declaratory orders would be governed by the same basic principles 
that govern declaratory judgments in tho courts." Sen. Rep. p. 18; 
H.R. Rep. p. 31 (Sen. Doc. pp. 204, 263). 



Attorney General's Mantjal on the APA 127 

61 
V 
SECTION 6 — ANCILLARY MATTERS 

Section 6 defines various procedural rights of private parties 
which may be incidental to rule making, adjudication, or the 
exercise of any other agency authority. The introductory words 
of section 6, "Except as otherwise provided in this Act," are 
intended to assure tha*- its provisions do not override contrary 
provisions in other parts of the act. Thus, the opportunity for 
informal appearance contemplated by section 6(a) is not to be 
construed so as to authorize ex parte conferences during formal 
proceedings when such conferences are forbidden by other sec- 
tions of the act. Sen. Rep. p. 18, H.R. Rep. p. 31 (Sen. Doc. pp. 
204, 263). 

Governing Definitions. The provisions of section 6 hinge to a 
considerable extent upon the definition of the terms "party", 
"person" and "agency proceeding". These terms are defined in 
section 2 of the act as follows : 

(b) "Person" includes individuals, partnerships, corporations, 
associations, or public or private organizations of any character 
other than agencies. "Party" includes any person or agency named or 
admitted as a party, or properly seeking and entitled as of right to be 
admitted as a party, in any agency proceeding; but nothing herein 
shall be construed to prevent an agency from admitting any person 
or agency as a party for limited purposes. 

* « « * 

(g) "Agency proceeding" means any agency process as defined in 
subsections (c), (d), and (e) of this section. [Defining rule making, 
adjudication and licensing, respectively.] 

SECTION 6(a) — APPEARANCE 

Formal Appearance, The first sentence of section 6(a) pro- 
vides that "Any person compelled to appear in person before any 
agency or representative thereof shall be accorded the right to be 
accompanied, represented, and advised by counsel or, if permit- 
ted by the agency, by other qualified representative." This re- 
states existing law and practice that persons compelled to appear 
in person before an agency or its representative must be ac- 
corded the right to be accompanied by counsel and to consult with 
or be advised by such counsel. Such persons are also entitled to 
have counsel act as their spokesmen in argument and where other- 
wise appropriate. Senate Comparative Print of June 1945, 
p. 10 (Sen. Doc. p. 26). It is clear, of course, that this pro- 
vision relates only to persons whose appearance is compelled or 
commanded, and does not extend to persons who appear volun- 





128 Administrative Procedure Act Appendix 



tarily or in response to mere request by an agency. Where ap- 
pearance is compelled, whether as a party or as a witness, the 
right to counsel exists. 

The phrase "or, if permitted by the agency, by other qualified 
representative" refers to the present practice of some agencies 
of permitting appearance or representation in certain matters 
by non-lawyers, such as accountants. The phrasing of this clause, 
together with the last sentence of the subsection, makes it clear 
that nothing in the first sentence was intended to change the ex- 
isting powers of agencies in this respect. See discussion, infra 
at pp. 65-6. 

The second sentence of the subsection relates to the rights of 
"parties" to "agency proceedings". It provides that every "party" 
shall have the right to appear in any agency proceeding "in person 
or by or with counsel or other duly qualified representative."^ 
The right of a party to appear personally or by or with counsel 
extends, in view of the definition of "agency proceeding", to pro- 
ceedings involving rule making, adjudication or licensing. The 
identity of the "parties" is usually clear in adjudication, licensing 
and formal rule making proceedings. However, since the pro- 
vision is not limited to formal proceedings (those governed by 
sections 7 and 8), but extends to informal rule making pro- 
ceedings, the term "party", in the latter type of proceeding, means 
any person showing the requisite interest in the matters involved. 
Sen. Rep. p. 19; H.R. Rep. p. 31 (Sen. Doc. pp. 205, 263). It is 
entirely clear that this right to appear in informal rule making 
proceedings is limited by the nature of the procedure adopted by 
an agency, pursuant to section 4(b). If the agency, under section 
4(b), provides interested persons an opportunity to present their 
views orally, the agency must allow any person with the requisite 
interest to appear personally or by counsel or other qualified 
representative. On the other hand, if the agency desires to hold 
informal rule making proceedings consisting of the submission of 
written data, views, or arguments, nothing in section 6(a) re- 
quires the agency to provide in addition for personal appearance. 
In other words, the second sentence of section 6(a) is not in- 
tended to limit an agency's discretion as to the type of rule making 
proceedings to be held in a particular case. (See opening clause of 
section 6: "Except as otherwise provided in this Act"). 



1 The phrase "qualified representative", as used in the second sentence of subsection 
6(a). relates to non-lawyers whose appearance as representatives for ethers is left, as 
under the first sentence of the subsection, to the control of the agencies. See infra, pp. 65-6. 



Attorney General's Manual on the APA 129 



n 



63 

Informal Appearance. The third sentence of section 6(a) pro- 
vides that '*So far as the orderly conduct of public business per- 
mits, any interested person may appear before any agency or its 
responsible officers or employees for the presentation, adjustment, 
or determination of any issue, request, or controversy in any pro- 
ceeding (interlocutory, summary, or otherwise) or in connection 
with any agency function.'* This sentence contemplates that inter- 
ested persons may appear not only in matters involving rule 
making, adjudication, and licensing, but also in connection with 
other agency functions. This provision is not to be construed as 
requiring an agency to give notice of its proposed action and to 
invite appearances by interested persons; an agency is not re- 
quired to provide an opportunity for appearance and adjustment 
to interested persons unless they request it. Sen. Rep. p. 19 (Sen. 
Doc. p. 205). 

The opportunity for informal appearance contemplated by the 
third sentence of section 6(a) means that any person should be 
given an opportunity to confer or discuss with responsible of- 
ficers or employees of the agency matters in which he is properly 
interested. This opportunity should be with a responsible officer 
or employee — one who can decide the matter or whose function it 
is to make recommendations on such matters — rather than of- 
ficers or employees whose duties are merely mechanical or formal. 
Sen. Rep. p. 19; H.R. Rep. p. 32 (Sen. Doc. pp. 205, 264). 

This provision for informal appearance is expressly limited by 
the subsection to "so far as the orderly conduct of public business 
permits." Clearly, both the right and its limitation should be 
construed to achieve practical and fair results. Appearance should 
be allowed except where it would be inconsistent with the orderly 
conduct of public business. A properly interested person who is 
permitted to appear should be accorded an opportunity to present 
his case or proposals to a responsible officer or employee as de- 
fined above. Repeated opportunities to present the same argu- 
ments or proposals are not required. Further, the act does not re- 
quire that every interested person be permitted to follow the chain 
of command to the head of the agency. It was not intended to re- 
quire the directors of the Reconstruction Finance Corporation, 
for example, to confer personally with every applicant for a loan. 
It is sufficient if the opportunity to confer is with an official of 
such status that he knows the agency's policy, and is able to 



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130 Administrative Procedure Act Appendix 



64 



bring unusual or meritorious cases to the attention of the officials 
who shape the policy or make final decisions. 

The opportunity thus to appear **for the presentation, adjust- 
ment, or determination of any issue, request, or controversy in 
any proceeding" — or "in connection with any agency function" re- 
lates not only to ''agency proceedings" as defined in section 2(g), 
but also to all other agency functions. It means, for example, that 
upon request any person should be allowed, where this is feasible, 
to present his reasons as to why a particular loan or benefit should 
be made or granted to him. It would also seem to mean that he can 
present his reasons as to why a particular controversy should be 
settled informally rather than in formal proceedings with at- 
tendant publicity. However, there is no requirement that the 
agency accept such proposals for informal settlement; if, for 
example, the agency believes that formal public proceedings 
will best serve the public interest, it is free to conduct such pro- 
ceedings. 

The reference to "interlocutory" or "summary" proceedings 
appears to be intended to provide an opportunity for informal ap- 
pearance and discussion in those situations where an agency 
takes significant action without prior formal proceedings. H.R. 
Rep. p. 32 (Sen. Doc. p. 264). For example, section 609 of the 
Civil Aeronautics Act of 1938 (49 U. S. C. 559) provides that 
"In cases of emergency, any such certificate [airworthiness certi- 
ficate, airman certificate, etc.] may be suspended, in whole or in 
part, for a period not in excess of thirty days, without regard to 
any requirement as to notice and hearing." Under section 6(a) 
of the Administrative Procedure Act, the persons who would be 
affected by such summary action should, if feasible, be allowed 
to appear and present their views on the proposed action. It is 
absolutely clear, however, that nothing in this subsection was 
intended to interfere with the primary objective of assuring 
safety in air travel. To the extent that the timely execution 
of the Administrator's duties, i.e., the "orderly conduct of public 
business," precludes discussion and negotiation, he need not hold 
such discussions. 

There will doubtless be many cases in which an agency will 
find it necessary to notice a matter for public hearing without 
preliminary discussion because a statute or the subject matter or 
the special circumstances so require. Sen. Rep. p. 41 (Sen Doc 
p. 227). 



Attorney General's Manual on the AP A 131 



B 



65 

The fourth sentence of section 6(a) provides that "Every 
agency shall proceed with reasonable dispatch to conclude any 
matter presented to it except that due regard shall be had for 
the convenience and necessity of the parties or their representa- 
tives." This provision merely restates a principle of good adminis- 
tration. 

Practice Before Agencies. The last sentence of section 6(a) 
provides that "Nothing herein shall be construed either to grant 
or to deny to any person who is not a lawyer the right to appear 
for or represent others before any agency or in any agency pro- 
ceeding." The question of the extent to which non-lawyers should 
be permitted to practice before administrative agencies was de- 
liberately left to the determination of the various agencies, as 
heretofore. House Hearings (1945) p. 34 (Sen. Doc. p. 80) ; H. 
R. Rep. p. 32 (Sen. Doc. p. 264). 

More broadly, section 6(a) leaves intact the agencies' con- 
trol over both lawyers and non-lawyers who practice before them. 
The reports of the Senate and House Judiciary Committees con- 
tain expressions of opinion to the effect that, as to lawyers de- 
siring to practice before an agency, the agency should normally 
require no more than a statement from a lawyer that he is in 
good standing before the courts. Sen. Rep. p. 19 ; H.R. Rep. p. 32 
(Sen. Doc. pp. 205, 264). However, the legislative history leaves 
no doubt that the Congress intended to keep unchanged the agen- 
cies' existing powers to regulate practice before them. When the 
House Committee on the Judiciary held hearings in 1945 on H.R. 
1203 (79th Cong., 1st sess.) which, under the title of S. 7, was en- 
acted as the Administrative Procedure Act, the Committee was 
specifically aware of the fact that H.R. 1203 contained no pro- 
vision relating to attorneys practicing before agencies, while 
H.R. 339, and H.R. 1117, also pending before the Committee, con- 
tained such provisions. House Hearings (1945) p. 34 (Sen. Doc. 
p. 80). Finally, during the House debate on S. 7, Representative 
Kefauver offered the following amendment to section 6: 

Any member of the bar who is in pood standinjr and who has been ad- 
mitted to the bar of the Supreme Court of the United States or of the 
highest court of the State of his or her residence shall be eligible to 
practice before any agency: Provided, however, That an agencv shall 
for good cause be authorized by order to suspend or deny the right to 
practice before such agency. 

The amendment was rejected by the House, apparently on the 

ground that the subject should be covered by separate legislation. 

92 Cong. Rec. 5666-8 (Sen. Doc. pp. 401-405). 



B 



132 Administrative Procedure Act Appendix 



It is clear, therefore, that the existing powers of the agencies 
to control practice before them are not changed by the Adminis- 
trative Procedure Act. For example, an agency may exclude, after 
notice and opportunity for hearing, persons of improper character 
from practice before it. Goldsmith v. Board of Tax Appeals, 270 
U.S. 117 (1926), or exclude parties or counsel from participation 
in proceedings by reason of unruly conduct, Okin v. Securities 
and Exchange Commission, 137 F. (2d) 398 (CCA. 2, 1943), or 
impose reasonable time limits during which former employees 
may not practice before the agency. 

SECTION 6(b) — ^INVESTIGATIONS 

The first sentence of section 6(b) provides that "No process, 
requirement of a report, inspection, or other investigative act 
or demand shall be issued, made, or enforced in any manner or 
for any purpose except as authorized by law." This is a restate- 
ment of existing law. Senate Comparative Print of June 1945, 
p. 11, Sen. Rep. p. 41 (Sen. Doc. pp. 27, 227). 

The second sentence of subsection 6(b) provides that "Every 
person compelled to submit data or evidence shall be entitled to 
retain or, on payment of lawfully prescribed costs, procure a copy 
or transcript thereof, except that in a nonpublic investigatory 
proceeding the witness may for good cause be limited to inspec- 
tion of the official transcript of his testimony." Under this, any 
person compelled to submit data or evidence, either as a party or 
as a witness, must be accorded the right to retain copies of writ- 
ten data submitted in response to a subpena duces tecum or other 
demand, or, upon payment of lawfully prescribed costs, to procure 
from the agency a copy of the data thus submitted or a trans- 
cript of the oral testimony which he was required to give. This 
right, it will be noted, is limited to the data and evidence submitted 
by the particular witness, and does not entitle him to copies 
or transcripts of the data and evidence submitted by other 
persons. Moreover, it extends only to persons "compelled" to 
testify or to submit data, and not to those who are merely re- 
quested to do so or who do so voluntarily. 

The right defined in the second sentence of section 6(b) is 
subject to the limitation "That in a nonpublic investigatory pro- 
ceeding the witness may for good cause be limited to inspection 
of the official transcript of his testimony." In the Committee re- 
ports, it is stated that this limitation was deemed necessary "where 



Attorney General's Manual on the AP A 1 3 3 

67 

evidence is taken in a case in which prosecutions may be brought 
later and it is obviously detrimental to the due execution of the 
laws to permit copies to be circulated." Sen. Rep. p. 19, H.R. 
Rep. p. 33 (Sen. Doc. pp. 205, 265). Thus, the phrase "non- 
public investigatory proceeding" covers all confidential phases 
of investigations, formal or informal, conducted by agencies to 
determine whether there have been violations of law. In such 
situations, the witness may be limited to inspection of such portions 
of the transcript of investigation as contain his own testimony. 
This right to inspect the transcript extends only to persons who 
have been compelled to testify. 

SECTION 6(c)— -SUBPENAS 

The first sentence of section 6(c) provides that "Agency sub- 
penas authorized by law shall be issued to any party upon re- 
quest and, as may be required by rules of procedure, upon a 
statement or showing of general relevance and reasonable scope 
of the evidence sought." The purpose of this provision is to make 
agency subpenas available to private parties to the same extent 
as to agency representatives. Sen. Rep. p. 20, H.R. Rep. p. 33 
(Sen. Doc. pp. 206, 265) ; 92 Cong. Rec. 5652 (Sen. Doc. p. 363). 
It applies to both subpenas ad testificandum and subpenas 
duces tecum. It should be emphasized that section 6(c) relates 
only to existing subpena powers conferred upon agencies; it 
does not grant power to issue subpenas to agencies which are not 
so empowered by other statutes. Senate Comparative Print of 
June 1945, p. 14 (Sen. Doc. pp. 29-30). 

The subsection requires the issuance of subpenas to any party 
"upon request and, as may be required by rules of procedure, 
upon a statement or showing of general relevance and reasonable 
scope of the evidence sought." It may be argued from the quoted 
language that agency subpenas must be issued merely upon re- 
quest of a party unless the agency requires, by its published pro- 
cedural rules, a "statement or showing of general relevance and 
reasonable scope of the evidence sought"; accordingly, each 
agency which is empowered to issue subpenas should issue rules 
of procedure stating the manner in which parties are to request 
subpenas and the contents of such requests. The standard of 
"general relevance and reasonable scope" should be interpreted 
and applied in the light of the statutory purpose of making 
administrative subpenas equally available to private parties and 



R 




134 Administrative Procedure Act Appendix 



68 

agency representatives. (See the second sentence of section 12). 
On the other hand, agencies should consider that subpenas which 
it may issue to aid private parties, like subpenas issued to assist 
the agencies themselves, are subject to the legal requirements 
and limitations restated in the second sentence of section 6(c). 
Thus, agencies may refuse to issue to private parties subpenas 
which appear to be so irrelevant or unreasonable that a court 
would refuse to enforce them. 

The right to subpenas stated in section 6(c) is limited to 
"parties", as defined in section 2(b). Accordingly, the right to 
administrative subpenas is applicable to parties to rule making, 
adjudication and licensing proceedings. 

The Act is silent as to the responsibility for payment of fees to 
witnesses called by private parties pursuant to subpenas issued 
by an agency.^ It was apparently thought that such a provision 
should be the subject of separate legislation. Senate Comparative 
Print of June 1945, p. 11 (Sen. Doc. p. 28). In view 
of this, it appears that the question of payment of witness fees 
may be dealt with by reasonable administrative regulations such 
as many agencies have already adopted.' 

The second sentence of section 6(c) provides that "Upon 
contest the court shall sustain any such subpena or similar proc- 
ess or demand to the extent that it is found to be in accordance 
with law and, in any proceeding for enforcement, shall issue an 
order requiring the appearance of the witness or the production 
of the evidence or data within a reasonable time under penalty of 
punishment for contempt in case of contumacious failure to com- 
ply." Upon its face, the subsection in requiring judicial enforce- 
ment of subpenas "found to be in accordance with law" is a 
reference to and an adoption of the existing law with respect to sub- 
penas. For example, nothing in section 6(c) seems intended to 



2 Section 10 of the Act of August 2, 194<> (Public Law 600. 79th Goner., 2d seu.) 
provides that "Whenever a department is authorized by law to hold hearings and to 
Fubpena witnesses for appearance at said hearingrs. witnesses summoned to and attending 
such hearings shall be entitled to the same feos and milcasre. or expenses in the case of 
Government officers and employees, as provided by law for witnesses attending in the 
United States courts." 

3 The following examples appear to be reasonable and appropriate: 
Federal Power Commtaston — Rules of Practice Under the Federal Power Act. 

Rule 1.131. "Fees of witnesses.-^ — Witnesses who are summoned are entitled to the same 
fees lis are paid for like services in the courts of the United States. .«;uch fees to he paid by the 
party at whose Instance the testimony is taken, and the Commission before issiiing subpoena 
may require a deposit of an amount adequate to cover the fees and milage involved." [16 
U.S.C. 825fl. 
Interetate Commerce Commiaeion — Rules of Practice. 

Rule 66(e). "Witness fees. A witness who is summoned and responds thoreto is entitled to 
the same fee as is paid for like service in the courts of the United Strifes, such fee to be paid 
bv the party at whose instance the testimony is taken at the time the suboena is served." 
[49 U.S.C. 18]. 



Attorney General's Manual on the APA 135 



change existing law as to the reasonableness and scope of sub- 
penas. Similarly, the subsection leaves unchanged existing law 
as to the scope of judicial inquiry where enforcement of a sub- 
pena is sought. In Endicott Johnson Corp, v. Perkins, 317 U.S. 
501 (1943), the Supreme Court held that where the Secretary of 
Labor sought judicial enforcement of a subpena issued in a pro- 
ceeding under the Walsh-Healey Public Contracts Act, the Dis- 
trict Court was not authorized to determine whether the respondent 
was subject to that act, as a condition precedent to enforcement 
of the subpena. Accord, under the Fair Labor Standards Act, 
Oklahoma Press Publishing Company v. Walling, 327 U.S. 186 
(1946). Nothing in the language of section 6(c) suggests any 
purpose to change this established >rule. It is said only that the 
court shall enforce a subpena "to the extent that it is found to 
be in accordance with law." "Law" refers to the statutes which 
a particular agency administers, together with relevant judicial 
decisions. 

This natural and literal construction of the second sentence of 
section 6(c) finds conclusive support in the legislative history 
of the provision. When S. 7 was introduced by Senator McCarran 
on January 6, 1945, section 6(c) provided that "Upon any con- 
test of the validity of a subpena or similar process or demand, 
the court shall determine all relevant questions of law raised by 
the parties, including the authority or jurisdiction of the agency," 
(Italics supplied). Clearly this language could be construed as 
intended to change the rule stated in Endicott Johnson 
Corp, V. Perkins, supra. However, when S. 7 was reported by the 
Senate Committee on the Judiciary on November 19, 1945 (Sen. 
Rep. p. 34 (Sen. Doc. p. 220)), section 6 was rephrased in its 
present form. This significant change in language, as well as the 
natural and literal reading of section 6(c), is persuasive that 
the subsection leaves unchanged the scope of judicial inquiry upon 
an application for the enforcement of a subpena. See also Sen. 
Rep. p. 41 (Sen. Doc. p. 227) ; 92 Cong. Rec. A2988 (Sen. Doc. 
p. 415). 

SECTION 6(d)— DENTALS 

Section 6(d) provides that "prompt notice shall be given of 
the denial in whole or in part of any written application, petition, 
or other request of any interested person made in connection with 
any agencj'' proceeding. Except in affirming a prior denial or 




B 



1 36 Administrative Procedure Act Appendix 



70 

where the denial is self-explanatory, such notice shall be accom- 
panied by a simple statement of procedural or other grounds." This 
requirement relates to applications, petitions and requests 
made by "interested persons" in connection with any "agency 
proceeding", i.e., rule making, adjudication and licensing pro- 
ceedings. It applies to such proceedings regardless of whether 
they are formal or informal. Sen. Rep. p. 20, H.R. Rep. p. 33 
(Sen. Doc. pp. 206, 265). As in the case of section 4(d), an 
"interested person" may be defined generally as one whose inter- 
ests are or will be affected by t'le agency action which may re- 
sult from the proceeding. It is clear that with respect to formal 
proceedings, the only interested persons are those who are 
"parties" to such proceedings within the meaning of section 2(b). 

Section 6(d) has no application to matters which do not re- 
late to rule making, adjudication or licensing. Generally, it is 
not applicable to the mass of administrative routine unrelated to 
those proceedings. 

The prompt notice of denial required by section 6(d) may be 
given in writing, addressed to the applicant, or orally (e.g., in the 
case of a proceeding conducted by an examiner). The required 
statement of grounds for denial, while simple in nature, must be 
sufficient to advise the party of the general basis of the denial. 

Where the denial is self-explanatory or affirms a previous 
denial, it need not be accompanied by a statement of reasons ; in 
such cases, it is assumed that the applicant has knowledge of the 
grounds for denial. 



ArroRNEY General's Manual ON THE AP A 137 

71 
VI 
SECTION 7 — HEARINGS 

The provisions of section 7 govern the conduct of hearings in 
those cases of rule making and adjudication which are required 
by sections 4 and 5 to be conducted in accordance with sections 
7 and 8. The requirements of section 7 are closely integrated with 
those of sections 5(c) (as to certain types of adjudication) and 
8. Section 7, together with sections 5(c) and 8, became effective 
on December 11, 1946, and is applicable to proceedings commenced 
on and after that date. See section 12. 

SECTION 7(a) — PRESIDING OFFICERS 

The first sentence of section 7(a) provides that "There shall 
preside at the taking of evidence (1) the agency, (2) one or more 
members of the body which comprises the agency or (3) one or 
more examiners appointed as provided in this Act; but nothing 
in this Act shall be deemed to supersede the conduct of specified 
classes of proceedings in whole or part by or before boards or 
other officers specially provided for by or designated pursuant 
to statute." 

Inasmuch as the provisions of section 11 relating to the se- 
lection and status of hearing examiners did not become effective 
until June 11, 1947 (see section 12), it is obvious that until then 
the agencies could continue to utilize their usual hearing examin- 
ers or officers, in compliance, of course, with the other require- 
ments of sections 5(c), 7 and 8. 

The last clause of the sentence is designed to permit agencies 
to continue to utilize hearing officers or boards "specially pro- 
vided for by or designated pursuant to statute." An earlier draft 
referred to "other officers specially designated by statute." See 
Senate Comparative Print, June 1945 pp. 12-13 (Sen. Doc. p. 
28). Under the original language, it might have been neces- 
sary for such an officer to be designated specifically by a statute 
to conduct a particular hearing, e.g., in the manner that 19 U.S.C. 
1641 requires that hearings to determine whether a customhouse 
broker's license should be suspended or revoked must be held by 
the collector or chief officer of the customs. Under the present 
broader language, the exception will also apply if a statute 
authorizes the agency to designate a specific officer or employee or 
one of a specific class of officers or employees to conduct the 



i 



u 



138 Administrative Procedure Act Appendix 



nearing. Examples of statutory provisions for hearing officers 
who may be utilized without regard to section 11 are: (1) joint 
hearings before officers of Federal agencies and persons desig- 
nated by one or more States (e.g., section 13(3) of the Inter- 
state Commerce Act, 49 U.S.C. 13(3)), as well as hearings be- 
fore joint State boards under section 209(a) of the Federal 
Power Act (16 U.S.C. 824h), (2) where officers of more than one 
agency sit, as joint boards composed of members of the Interstate 
Commerce Commission and the Civil Aeronautics Board pursuant 
to section 1003 of the Civil Aeronautics Act (49 U.S.C. 643), (3) 
quota review committees under the Agricultural Adjustment 
Act of 1938 (7 U.S.C. 1363), and (4) boards of employees under 
the Interstate Commerce Act (49 U.S.C. 17(2)). Sen. Rep. pp. 
41-42, (Sen. Doc. pp. 227-228). A statutory provision which 
merely provides for the conduct of hearings by any officers or 
employees the agency may designate, does not come within the 
exception so as to authorize the agency to dispense with hearing 
examiners appointed in accordance with section 11. H.R. Rep. p. 
34 (Sen. Doc. p. 268). 

Generally, whoever presides at the hearing (whether an ex- 
aminer appointed pursuant to section 11, a member of the agency 
or a special statutory board or hearing officer) is subject to the 
remaining provisions of the Act. Sen. Rep. p. 21 ; H.R. Rep. p. 
34 (Sen. Doc. pp. 207, 268). However, where a member of the 
agency acts as presiding officer, the exception in the last clause 
of section 5(c) applies, with the result that he is not disqualified, 
as an examiner would be, by previous participation in the investi- 
gation of the case. Similarly, a statute requiring or authorizing 
a hearing to be conducted by a particular board or officer may 
have the further effect of requiring such board or officer to parti- 
cipate in the investigation or prosecution or of placing the board 
or officer under the supervision or direction of investigating or 
prosecuting officials. See 19 U.S.C. 1641. In the latter case, it 
would seem that to the extent the general requirements of section 
5(c) are inconsistent they are inapplicable. 

The second sentence of section 7(a) provides that "The func- 
tions of all presiding officers and of officers participating in de- 
cisions in conformity with section 8 shall be conducted in an im- 
partial manner." This means, of course, that "They must conduct 
the hearing in a strictly impartial manner, rather than as the 
representative of an investigative or prosecuting authority, but 



Attorney General's Manual ON Tim APA 139 

73 
this does not mean that they do not have the authority and duty— 
as a court does— to make sure that all necessary evidence is ad- 

of ^o"^*° ^^^P *^® ^^^""^ °"^^''^y and efficient." Sen Rep p 
21, H.R Rep. p 34 (Sen. Doc. pp. 207, 268). This is not intended 
to prohibit a hearing officer from questioning witnesses and 
otherwise encouraging the making of a complete record. 

The third sentence of section 7(a) provides that "Any such 
officer may at any time withdraw if he deems himself disquali- 

ImL^^'T"" *''', f"^ ^" ^""^ ^""^^ "^ ^ t^^'y and sufficient 
affidavit of personal bias or disqualification of any such officer, the 
agency shall determine the matter as a part of the record and 
decision m the case." This provision authorizes any presiding 
officer to withdraw from a proceeding if he considers himsel? 
disqualified, for example, as being related to a party. In addSn 
X •.™'^' ^^ '^' "^""^ '" '""^ ^^'* °f a timely'^and sufficient 
or dtn! '• f'r* ^ *' "^^"'^^ *^^ '^^"« "f the "personal bias 

deterZnl' t^ .'/ '"^ '"'^ '^''''" ' ^'^^''^^P^" "^^^ agency shall 
determine the matter as a part of the record and decision in the 

n^^iifi.?r^""f ^'^ not required on every charge of bias or dis- 

upon^tf r..^ """l^'^J '^'''■' " '^' ^^^^'''^ ^« insufficient 
upon Its face, it may be dismissed summarily. In other cases, the 
agency may consider it appropriate to investigate the charg^ it- 
self or by another hearing officer. In any event, the agency's de- 
cision and the proceedings upon such an affidavit must be made 
a part of the record of the case in which the affidavit is filed 
Sen. Rep. pp. 21, 42, H.R. Rep. p. 35 (Sen. Doc. pp. 207, 228 269) 
It a court in reviewing the agency's final action finds con- 

oua^S th' ^'""'^' *!•"* l^' ^^^""^ ''«'^«^ -as biased or d°s- 
qualified, the agency action based upon the recommended or initial 
decision made by such officer is not thereby automatically S- 
rather the question is whether the private party was prlSd 

of such bias or disqualification on the part of a presiding officer 
are alluded to m the reports of the Senate and House Commits 
on he Judiciary as follows: "The effect which bias or d^S. 
fica^on shown upon the record might have would be determined 
by the ordinary rules of law and the other provisions of thTbm 
If It appeared or were discovered late, it would have the effect- 
wher^issu_es of fact or discretion were important and the co^ 



B 



D 



140 Administrative Procedure Act Appendix 



74 

duct and demeanor of witnesses relevant in determining them — 
of rendering the recommended decisions or initial decisions of 
such officers invalid/' Sen. Rep. p. 21, H.R. Rep. p. 35 (Sen. Doc. 
pp. 207, 269). 

SECTION 7(b) — HEARING POWERS 

Section 7(b) provides that "Officers presiding at hearings 
shall have authority, subject to the published rules of the agency 
and within its powers, to (1) administer oaths and affirmations, 
(2) issue subpenas authorized by law, (3) rule upon offers of 
proof and receive relevant evidence, (4) take or cause deposi- 
tions to be taken whenever the ends of justice would be served 
thereby, (5) regulate the course of the hearing, (6) hold con- 
ferences for the settlement or simplification of the issues by con- 
sent of the parties, (7) dispose of procedural requests or similar 
matters, (8) make decisions or recommend decisions in conform- 
ity with section 8, and (9) take any other action authorized by 
agency rule consistent with this Act." 

The quoted language automatically vests2 in hearing officers 
the enumerated powers to the extent that such powers have been 
given to the agency itself, i.e., "within its powers." In other 
words, not only are the enumerated powers thus given to hearing 
officers by section 7(b) without the necessity of express agency 
delegation, but an agency is without power to withhold such 
powers from its hearing officers. This follows not only from the 
statutory language, "shall have authority", but from the general 
statutory purpose of enhancing the status and role of hearing 
officers. Thus, in the Senate Comparative Print of June 1945. p. 14 
(Sen. Doc. p. 29), it is stated that "The statement of the powers 
of administrative hearing officers is designed to secure that re- 
sponsibility and status which the Attorney General's Committee 
stressed as essential (Final Report, pp. 43-53 particularly at pp. 
45-46 and 50)." See also Sen. Rep. p. 21, H.R. Rep. p. 35, 92 
Cong. Rec. 2157 (Sen. Doc. pp. 207, 269, 319-320) ; cf. Sen. Rep. p. 
42 (Sen. Doc. p. 228). 

As noted above, the subsection vests in hearing officers only 
such of the enumerated powers as the agency itself possesses. 
If an agency lacks the authority to issue subpenas, subsection 
7(b) does not grant the subpena power to that agency's hearing 

9 c{nr» neetion 7(b) itself veats these powers (includinsr the sabpena Pp^er) In 
heJnt omcen Cudahy Paclnr,^ Co. v. Holland. 316 U.S 367 (1942). ^r^A Fleming t. 
Mohawk Co. lz\V. S. in (1947). dealing with the authority of agencies to delegate such 
powers, have no application here. 



Attorney General's Manual on the APA 141 

75 

officers. Senate Comparative Print, June 1945, p. 14 (Sen. 
Doc. pp. 29-30). The phrase ''subject to the published rules of 
the agency" is intended to make clear the authority of the 
agency to lay down policies and procedural rules which will 
govern the exercise of such powers by presiding officers. Senate 
Hearings (1941) pp. 653, 1457-1458. For example, if an agency 
provides by rule that the fact of citizenship must be established 
in a prescribed manner, the hearing officer must conform to such 
rule in exercising his power to "rule upon offers of proof and re- 
ceive relevant evidence". Similarly, if an agency provides that 
subpenas duces tecum shall be issued only upon written appli- 
cation specifying the documents desired and their relevance, the 
hearing officer is bound to comply. 

Agencies remain free to provide for appeals to the agency 
heads from rulings of hearing officers in the exercise of the powers 
enumerated in section 7(b). For example, when a ruling excluding 
certain evidence, if reversed by the agency, would necessitate re- 
opening of the hearing and recalling witnesses, it may be de- 
sirable to permit an immediate appeal from the ruling. 

SECTION 7(c) — EVIDENCE 

Burden of proof. The first sentence of section 7(c) provides 
that "Except as statutes otherwise provide, the proponent of a 
rule or order shall have the burden of proof." In the Senate 
Comparative Print, June 1945, p. 15 (Sen. Doc. p. 31), it is 
stated that "The provision relating to burden of proof is the 
standard rule." There is some indication that the term "burden 
of proof" was not employed in any strict sense, but rather 
as synonymous with the **burden of going forward".* In either 
case, it is clear from the introductory clause that this 
general statement was not intended to repeal specific provisions 
of other statutes which, as by establishing presumptions, alter 
what would otherwise be the "burden of proof" or the "burden 
of going forward". Sen. Rep. p. 42 (Sen. Doc. p. 228). 

Evidence. The second sentence of section 7(c) provides that 
"Any oral or documentary evidence may be received, but every 



D 



3 Thus, in Sen. Rep. p. 22 (Sen. Doc. p. 208), it is stated: "That the proponent of » rul« 
or order has the burden of proof means not only that the party initiating the proceeding 
has the general burden of coming forward with a prima facie case but that other 
parties, who are proponents of some different result, also for that purpose have a burden 
to maintain." See also H.R. Rep. p. 86 (Sen. Doc. p. 270). 



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142 Administrative Procedure Act Appendix 



76 



agency shall as a matter of policy provide for the exclusion of 
irrelevant, immaterial, or unduly repetitious evidence and no 
sanction shall be imposed or rule or order be issued except upon 
consideration of the whole record or such portions thereof as may 
be cited by any party and as supported by and in accordance with 
the reliable, probative, and substantial evidence." 

Under section 7(c) it is clear that, as heretofore, the technical 
rules of evidence will not be applicable to administrative hear- 
ings. See also Final Report, p. 70. Thus, it is stated that "the mere 
admission of evidence is not to be taken as prejudicial error (there 
being no lay jury to be protected from improper influence) al- 
though irrelevant, immaterial, and unduly repetitious evidence 
is useless and is to be excluded as a matter of efficiency and good 
practice." H.R. Rep. p. 36, Sen. Rep. p. 22 (Sen. Doc. pp. 270, 
208). To carry out this policy, it is advisable that each agency di- 
rect its hearing officers to exclude from the record so far as 
practicable irrelevant, immaterial or unduly repetitious evidence. 

Agency action must be supported by "reliable, probative, and 
substantial evidence." It is said that "These are standards or 
principles usually applied tacitly and resting mainly upon com- 
mon sense which people engaged in the conduct of responsible 
affairs instinctively understand." H.R. Rep. p. 36, Sen. Rep. 
p. 22 (Sen. Doc. pp. 270, 208). This restates the present law. 
H.R. Rep. p. 53, fn. 18 (Sen. Doc. p. 287) ; Consolidated Edison 
Co, V. National Labor Relations Board, 305 U.S. 197, 230 (1938) ; 
Senate Comparative Print, p. 14 (Sen. Doc. p. 31). It is clear 
that nothing in section 7(c) is intended to change the stand- 
ard or scope of judicial review; section 10(e)(5) specifically 
restates the "substantial evidence rule", as developed by the 
Congress and the courts, under which the reviewing court as- 
certains whether the agency's findings of fact are supported by 
substantial evidence. 

Nothing in section 7(c) is intended to preclude an agency from 
imposing reasonable requirements as to how particular facts 
must be established — such as age, citizenship, marital status, 
etc. Nor is an agency forbidden to draw such inferences or pre- 
sumptions as the courts customarily employ, such as the failure 
to explain by a party in exclusive possession of the facts, or the pre- 
sumption of continuance of a state of facts once shown to exist. 



Attorney General's Manual on the APA 143 



77 

Furthermore, section 7(c) does not repeal provisions of other 
statutes which establish certain presumptions of fact.* 

Presentation of evidence. Section 7(c) provides further that 
"Every party shall have the right to present his case or defense 
by oral or documentary evidence, to submit rebuttal evidence, and 
to conduct such cross-examination as may be required for a full 
and true disclosure of the facts." It is concluded that the provision 
is intended to emphasize the right of parties in cases of adjudi- 
cation (other than determining claims for money or benefits 
or applications for initial licenses) to present their evidence 
orally, and in addition to present such "documentary evidence" 
as would be admissible in judicial proceedings, such as writings 
and records made in regular course of business. 28 U.S.C. 695. 
As here used "documentary evidence" does not mean affidavits 
and written evidence of any kind. Such a construction would 
flood agency proceedings with hearsay evidence. In the last sentence 
of the subsection, there appears the phrase "evidence in written 
form," thus indicating that the Congress distinguished between 
"written evidence" and "documentary evidence." See also section 
203(c) of the Emergency Price Control Act. Again, the subsec- 
tion expressly states the right to adequate cross-examination. 
Against this background, it is clear that the "right to present 
his case or defense by oral or documentary evidence" does not 
extend to presenting evidence in affidavit or other written form 
so as to deprive the agency or opposing parties of opportunity 
for cross-examination, nor so as to force them to assume the ex- 
pense of calling the affiants for cross-examination. See Powhatan 
Mining Co, v. Ickes, 118 F. 2d 105, 109 (CCA. 6, 1941). 

Of course, the agency may, if it desires, receive such written 
evidence as it determines would tend to be reliable and probative 
and the admission of which would not prejudicially deprive other 
parties or the agency of opportunity for cross-examination. Thus, 
technical and statistical data may be introduced in convenient 
written form subject to adequate opportunity for cross-examina- 
tion and rebuttal. Sen. Rep. p. 42, H.R. Rep. p. 37 (Sen. Doc. pp. 
228, 271). Any evidence may be admitted by agreement or if no 



D 



4 For example, section 20(d) of the Longshoremen's and Harbor Workers' Com- 
pensaton Act (33 U.S.C. 920(d)), provides that "In any proceedings for the enforcement 
of a claim for compensation it shall be presumed, in the absence of substantial evidence 
to the contrary — (d) that the injury was not occasioned by the willful intention of the 
injured employee to injure or kill himself or another." See Del Vecchio v. Bowert, 296 
U.S. 280 (1935). See also section 2 (a) 9 of the Investment Company Act of 1940 (IB 
U.S.C. 80a-2(9)). 



B 



144 Administrative Procedure Act Appendix 



78 

objection is made. Opp Cotton Mills, Inc. v. Administrator, 312 
U.S. 126, 155 (1941). 

The provision for "such cross-examination as may be required 
for a full and true disclosure of the facts" does not, according 
to the House Committee Report, "confer a right of so-called *un- 
limited' cross-examination. Presiding officers will have to make the 
necessary initial determination whether the cross-examination 
is pressed to unreasonable lengths by a party or whether it is 
required for the 'full and true disclosure of the facts' stated in 
the provision. Nor is it the intention to eliminate the authority 
of agencies to confer sound discretion upon presiding officers in 
the matter of its extent. The test is — as the section states — 
whether it is required 'for a full and true disclosure of the facts.* 
In many rule making proceedings where the subject matter and 
evidence are broadly economic or statistical in character and the 
parties or witnesses numerous, the direct or rebuttal evidence 
may be of such a nature that cross-examination adds nothing 
substantial to the record and unnecessarily prolongs the hear- 
ings." H.R. Rep. p. 37 (Sen. Doc. p. 271). 

In proceedings involving rule making or determining claims 
for money or benefits or applications for initial licenses, an agency 
may adopt procedures for the submission of all or part of the 
evidence in written form. Thus, in rate making and licensing 
proceedings, which frequently involve extensive technical or 
statistical data, the agency may require that the mass of such 
material be submitted in orderly exhibit form rather than be read 
into the record by witnesses. Similarly, in determining claims 
for money or benefits, the agency may require that the papers 
filed in support of the application contain the factual material. 
Such procedures may be required only "where the interest of any 
party will not be prejudiced thereby.'* Typically, in these cases, 
the veracity and demeanor of witnesses are not important. It is 
difficult to see how any party's interests would be prejudiced by 
such procedures where sufficient opportunity for rebuttal exists. 
However, "To the extent that cross-examination is necessary to 
bring out the truth, the party should have it." Sen. Rep. p. 23, 
H.R. Rep. p. 37 (Sen. Doc. pp. 209, 271). Such is the present 
practice of such agencies as the Civil Aeronautics Board, which 
has made extensive use of written evidence procedures to simplify 
records and shorten formal hearings. 



Attorney General's Manual on the APA 145 

79 
SECTION 7(d) — RECORD 

Record. The first sentence of section 7(d) provides that "The 
transcript of testimony and exhibits, together with all papers and 
requests filed in the proceeding, shall constitute the exclusive 
record for decision in accordance with section 8 and, upon pay- 
ment of lawfully prescribed costs, shall be made available to the 
parties." The record must include any agency proceedings upon 
an affidavit of personal bias or disqualification of a hearing officer 
pursuant to section 7(a). All decisions (initial, recommended 
or tentative) are required by section 8(b) to be made a part of 
the record. It is believed, by analogy to judicial practice, that 
the subsection does not require the transcription of oral arguments 
for inclusion in the record. 

In the interests of economy, certain agencies have followed 
the practice of not transcribing the stenographic record of the 
hearing unless there is an appeal from the decision of the officer 
presiding at the hearing. Section 7(d) does not require an agency 
to have the record transcribed automatically in every case, but 
it does require transcription in any case where a party demands 
a copy of the record, so that it will be available to him "upon 
payment of lawfully prescribed costs." This requirement is satis- 
fied by the present agency practice of contracting with private 
stenographic agencies for reporting service on terms that enable 
parties to obtain copies at a reasonable price. 

Official notice. The second sentence of section 7(d) provides 
that "Where any agency decision rests on official notice of a 
material fact not appearing in the evidence in the record, any 
party shall on timely request be afforded an opportunity to show 
the contrary." In the Senate Comparative Print, June 1945, 
p. 15 (Sen. Doc. p. 32), it is stated that "The rule of oflficial 
notice is that recommended by the Attorney General's Committee, 
particularly the safeguard that parties be apprised of matters 
so noticed and accorded an 'opportunity for reopening of the 
hearing in order to allow the parties to come forward to meet the 
facts intended to be noticed.' (Final Report pp. 71-73)." The 
recommendation of the Attorney General's Committee, which is 
thus apparently adopted was that "the permissible area of official 
notice be extended" so as to avoid "laborious proof of what is 
obvious and notorious," subject to opportunity for rebuttal or ex- 
planation, as provided in section 7(d). See the excellent discussion 
in Final Report, pp. 71-73, pointing out that the process of 



B 



146 Admnistrative Procedure Act Appendix 

80 

official notice should not be limited to the traditional matters of 
judicial notice but extends properly to all matters as to which the 
agency by reason of its functions is presumed to be expert, such 
as technical or scientific facts within its specialized knowledge. 
Cf. H.R. Rep. p. 38 (Sen. Doc. p. 272). 

Agencies may take official notice of facts at any stage in a 
proceeding — even in the final decision^ — but the matters thus 
noticed should be specified and "any party shall on timely re- 
quest be afforded an opportunity to show the contrary." The mat- 
ters thus noticed become a part of the record and, unless suc- 
cessfully controverted, furnish the same basis for findings of 
fact as does "evidence" in the usual sense. 



5 "Where aeeneies take such notice they must so state on the record or in their 
decisions and then afford the parties an opportunity to show the contrary." Sen. Rep. 
p. 23. H.R. Rep. pp. 37-38 (Cen. Doc. pp. 209. 271). If oflicial notice is taken of facts 
in the course of the final decision, the proceeding: need not be reopened automatically, 
but the parties will be entitled to request reopening for the purpose of contesting the 
facts thus oflBeially noticed by the asency. 



Attorney General's Manual on the APA 147 

81 

VII 

SECTION 8 — DECISIONS 

The provisions of section 8, together with those of section 
5(c), govern the procedure subsequent to hearing. Section 8 
applies to cases of rule making and adjudication which are re- 
quired by sections 4 and 5 to be conducted in accordance with 
sections 7 and 8. It became effective on December 11, 1946, and 
is applicable to proceedings commenced on and after that date. 
See section 12. 

SECTION 8(a) — WHO DECIDES 

Section 8(a) provides for intermediate and final decisions, 
prescribes who shall make them, and defines the decisional re- 
lationship between the agency heads and presiding officers.^ The 
subsection reads as follows: 

Action by subordinates. In cases in which the agency has not pre- 
sided at the reception of the evidence, the officer who presided (or, in 
cases not subject to subsection (c) of section 5, any other officer or 
officers qualified to preside at hearings pursuant to section 7) shall 
initially decide the case or the agency shall require (in specific cases 
or by general rule) the entire record to be certified to it for initial 
decision. Whenever such officers make the initial decision and in the 
absence of either an appeal to the agency or review upon motion of 
the agency within time provided by rule, such decision shall without 
further proceedings then become the decision of the agency. On ap- 
peal from or review of the initial decisions of such officers the agency 
shall, except as it may limit the issues upon notice or by rule, have 
all the powers which it would have in making the initial decision. 
Whenever the agency makes the initial decision without having pre- 
sided at the reception of the evidence, such officers shall first recom- 
mend a decision except that in rule making or determining applica- 
tions for initial licenses (1) in lieu thereof the agency may issue a 
tentative decision or any of its responsible officers may recommend a 
decision or (2) any such procedure may be omitted in any case in 
which the agency finds upon the record that due and timely execution 
of its functions imperatively and unavoidably so requires. 

At the outset, it should be noted that section 8(a) has no 
application to cases in which the agency itself has presided at the 
reception of the evidence. The procedures required by this sub- 
section are intended "to bridge the gap between the officials who 
hear and those who decide cases." H.R. Rep. p. 38 (Sen. Doc. p. 
272). If the agency itself, e.g., the Interstate Commerce Com- 
mission, hears the evidence, it may decide the case without the use 
of any intermediate decision. In such cases, however, the agency 
may, if it desires, preface its final decision with a tentative de- 
cision to which the parties may file exceptions. 




1 Any of the requirements of Bectfon 8 may be waived by the parties. Sen. Rep. p. 
23 (Sen. Poc. p. 209). 



B 



148 Admnistrative Procedure Act Appendix 



82 

In cases of adjudication subject to section 5(c) and in which 
the agency itself has not presided at the reception of evidence, 
the presiding officer^ must ''initially decide the case or the agency 
shall require (in specific cases or by general rule) the entire 
record to be certified to it for initial decision/' It is further pro- 
vided that "Whenever the agency makes the initial decision with- 
out having presided at the reception of the evidence [the presid- 
ing officer] shall first recommend a decision." That is, in cases 
of adjudication subject to section 5(c), the presiding officer must 
make either (a) an "initial" decision which will become the 
agency's final decision in the absence of an appeal to or review 
by the agency, or (b) a "recommended" decision which will be 
followed by an "initial" decision by the agency. 

Under the terms of the subsection, the presiding officer's de- 
cision will constitute an initial decision unless the agency pro- 
vides otherwise either by general rule published in the Federal 
Register or by order in the particular case. Accordingly, each 
agency should determine whether it desires the decisions of its 
presiding officers to be "initial" decisions or recommended de- 
cisions. 

In cases not subject to section 5 (c) , the agency may provide 
for the making of initial decisions by "any other officer or officers 
qualified to preside at hearings pursuant to section 7." That is, 
in rule making, in "determining applications for initial licenses," 
and in "proceedings involving the validity or application of rates, 
facilities, or practices of public utilities or carriers," an "initial" 
decision may be made, for example, by a hearing examiner other 
than the one who heard the evidence. Further, the fourth sent- 
ence of section 8(a) provides that in rule making and in determin- 
ing applications for initial licenses the agency may issue a 
tentative decision or any of its responsible officers may recommend 
a decision in lieu of a recommended decision by the hearing ex- 
aminer who conducted the hearing. This last clause permits, in 
rule making and determining applications for initial licenses, 
"the continuation of the widespread agency practice of serving 
upon the parties, as a substitute for either an examiner's report 
or a tentative agency report, a report prepared by the staff of 
specialists and technicians normally engaged in that portion of 

2 As here used, presiding officer means the member of the agency, the examiner 
appointed pursuant to section 11, or the special statutory board or hearingr officer who 
conducted the hearing. See section 7(a). Where the prcsidinsr officer becomes unavailable 
as by Illness or leavinir the agency, the agency mav direct another hearing officer to 
make an initial or recommended decision, or it may issue a tentative decision, or it may 
order a rehearing. 



Attorney General's Manual on the APA 149 



83 

the agency's operations to which the proceeding in question re- 
lates." Sen. Rep. p. 438 (Sen. Doc. p. 229). 

Finally, in rule making or determining applications for initial 
licenses, the agency may itself decide the case without any prior 
initial, recommended or tentative decision, even though it has not 
presided at the reception of the evidence, "in any case in which 
the agency finds upon the record that due and timely execution 
of its functions imperatively and unavoidably so requires." 

Appeals and review. Where the agency permits a hearing of- 
ficer to make an ^'initial" decision, "in the absence of either an 
appeal to the agency or review upon motion of the agency within 
time provided by rule, such decision shall without further pro- 
ceedings then become the decision of the agency." Parties may 
appeal from the hearing ofl^cer's initial decision to the agency, 
which must thereupon itself consider and decide the case. Also, 
the agency may review the hearing officer's initial decision even 
though the parties fail to appeal. Each agency should publish a 
rule prescribing the time within which parties may appeal or 
the agency may call up the case for review.* Where the hearing 
examiner (or other officer where permitted by the subsection) 
makes a recommended decision, the agency must always make an 
"initial" or final decision. 

In making its decision, whether following an initial or recom- 
mended decision, the agency is in no way bound by the decision 
of its subordinate officer; it retains complete freedom of de- 
cision — as though it had heard the evidence itself. This follows 
from the fact that a recommended decision is advisory in nature. 
See National Labor Relations Board v. Elkland Leather Co., 114 
F. 2d 221, 225 (CCA. 3, 1940), certiorari denied, 311 U.S. 706. 
Similarly, the third sentence of section 8(a) provides that "On 
appeal from or review of the initial decisions of such [hearing] 
officers the agency shall, except as it may limit the issues upon 
notice or by rule, have all the powers which it would have in 
making the initial decision." This is not to say that hearing 




8 It is to be noted that In "proee«dinffs involvinir the validity or application of 
rates, facilities, or practices of public utilities or carriers" (if they do not constitute 
either rule making or the determination of an application for an initial license), an 
intermediate (i.e., "initial" or "recommended") decision must be made by the hearing 
examiner who conducted the hearinsr or by some other officer or officers qualified to pre- 
side at hearinsrs pursuant to section 7(a). 

4 It is important to note that section 10(c) permits an agency to require parties 
to appeal from hearinsr officers' initial decisions to the agrency as a prerequisite to ob- 
taining judicial review. Such a requirement must be set forth in a published rule which must 
further provide that the hearing officer's initial decision shall be inoperative pending 
the agency's review of the case. Sen. Rep. p. 27, H.R. Rep. pp. 43, 66, fn. 21 (Sen. 
Doc pp. 218. 277. 289). 



B 



150 Administrative Procedure Act Appendix 

84 

examiners' initial or recommended decisions are without effect. 
"They become a part of the record [as required by subsection 
8(b)] and are of consequence, for example, to the extent that 
material facts in any case depend on the determination of credi- 
bility of witnesses as shown by their demeanor or conduct at the 
hearing." Sen. Rep. p. 24, H.R. Rep. p. 38 (Sen. Doc. pp. 210, 
272). In such cases, it is apparently assumed that agencies will 
attach considerable weight to the findings of the examiner who 
saw and heard the witnesses. However, in cases where the credi- 
bility of witnesses is not a material factor, or cases where the 
recommended or initial decision is made by an officer other than 
the one who heard the evidence, the function of such decision 
will be, rather, the sharpening of the issues for subsequent pro- 
ceedings. 

Section 8(a) empowers agencies to **limit the issues upon 
notice or by rule" on appeal from or review of the initial de- 
cisions of hearing officers. That is, an agency may limit the issues 
which it will consider in such cases by notice in a particular case 
or by a general rule published in the Federal Register. It may 
restrict its review to questions of law and policy or, where it is 
alleged that erroneous findings of fact have been made by the 
hearing officer, to determining whether cited portions of the 
record disclose that the findings are clearly wrong. Final Report, 
p. 51. See also Sen. Rep. p. 43 (Sen. Doc. p. 229) . 

Where the hearing officer makes a recommended decision, the 
agency must itself consider and determine all issues properly 
presented. However, it may provide that it will consider only 
such objections to its subordinates' decisions (recommended or 
initial) as are presented to it as exceptions to such decisions. 
See Marshall Field & Co. v. National Labor Relations Board, 
318 U.S. 253, 255 (1943) ; National Labor Relations Board v. 
Cheney California Lumber Co., 327 U.S. 385, 387-88 (1946). It 
may also require that exceptions be precise and supported by 
specific citations to the record.^ The agency in reviewing either 
initial or recommended decisions may adopt in whole or in part 
the findings, conclusions and basis therefor stated by the presiding 



S See Final Report, p. 62: 'The Committee Btronsrly nr^es that the agencies abandon 
the notion that no matter how unspecified or unconvincingr the grounds set out for appeal, 
there is yet a duty to reexamine the record minutely and reach fresh conclusions with- 
out reference to the hearing commissioner's decision. Agencies should insist upon meaning- 
fal content and exactness in the appeal from the hearing commissioner's decision and in 
the subsequent oral argument before the agency. Too often, at present, exceptions are 
blanket in character, without reference to pages in the record and without in any way 
narrowing the issues. They simply seek to impose upon the agency the burden of com- 
plete reexamination. Review of the hearing commissioner's decision should in general 
und in the absence of clear error be limited to grounds specified in the appeal." 



AiTORNEY General's Manual on the APA 151 



n 



85 

officer. On the other hand, it may make entirely new findings 
either upon the record or upon new evidence which it takes. Also, 
it may remand the case to the hearing officer for any appropriate 
further proceedings. Sen. Rep. p. 43, H.R. Rep. pp. 38-39 (Sen. 
Doc. pp. 229, 272-273). 

SECTION 8(b) — SUBMITTALS AND DECISIONS 

Stcbmittals, The first sentence of section 8(b) provides that 
"Prior to each recommended, initial, or tentative decision, or 
decision upon agency review of the decision of subordinate of- 
ficers the parties shall be afforded a reasonable opportunity to 
submit for the consideration of the officers participating in such 
decisions (1) proposed findings and conclusions, or (2) excep- 
tions to the decisions or recommended decisions of subordinate 
officers or to tentative agency decisions, and (3) supporting 
reasons for such exceptions or proposed findings or conclusions/' 
[Italics supplied]. The procedure thus prescribed for the 
focusing of issues and arguments is a codification of the present 
general practice. Senate Comparative Print, June 1945, p. 16 
(Sen. Doc. p. 33). "Ordinarily proposed findings and con- 
clusions are submitted only to the officers making the initial [or 
recommended] decision, and the parties present exceptions there- 
after if they contest the result. However, such exceptions may 
in form or effect include proposed findings or conclusions for the 
reviewing authority to consider as part of the exceptions." Sen. 
Rep. pp. 24, 43 (Sen. Doc. pp. 210, 229). 

Agencies may require that proposed findings and conclusions 
and exceptions be supported by precise citation of the record or 
legal authorities as the case may be. Reasonable time limits for 
the submission of such materials may be imposed. The opportuni- 
ty to submit supporting reasons means that briefs on the law and 
facts which are filed by parties in support of their proposed 
findings and conclusions and exceptions must be received and 
considered. Sen. Rep. p. 24, H.R. Rep. p. 39 (Sen. Doc. pp. 210, 
273). Section 8(b) does not purport to prescribe opportunities for 
oral argument. Accordingly, subject to the provisions of particu- 
lar statutes, each agency must itself determine in what cases oral 
argument before hearing officers or the agency is necessary or 
appropriate.* 



6 See Morgan r. United States. 298 U.S. 468. 481 (1936) : "Argument may be oral 
or written." 



D 



1 52 Administrative Procedure Act Appendix 



86 

Decisions, Section 8(b) further provides: "The record shall 
show the ruling upon each such finding, conclusion, or exception 
presented. All decisions (including initial, recommended, or tenta- 
tive decisions) shall become a part of the record and include a 
statement of (1) findings and conclusions, as well as the reasons 
or basis therefor, upon all the material issues of fact, law, or dis- 
cretion presented on the record; and (2) the appropriate rule, 
order, sanction, relief, or denial thereof." 

Since all decisions, whether made by the agency or by a sub- 
ordinate officer, become a part of the record, the requirement of 
the first quoted sentence will be satisfied if such decisions in some 
way indicate the ruling of the agency or such officer upon each 
requested finding or conclusion or exception presented to the 
agency or to such officer. The purpose of this requirement is "to 
preclude later controversy as to what the agency had done." H.R. 
Rep. p. 54, fn. 19 (Sen. Doc. p. 288). 

The form and content of decisions, as prescribed in the last 
sentence of section 8 (b) , are discussed in the Committee reports 
as follows: 

The requirement that the agency must state the basis for its findings 
and conclusions means that such findings and conclusions must be suf- 
ficiently related to the record as to advise the parties of their record basis. 
Most agencies will do so by opinions which reason and relate the issues 
of fact, law, and discretion. Statements of reasons, however, may be long 
or short as the nature of the case and the novelty or complexity of the 
issues may require. 

Findings and conclusions must include all the relevant issues pre- 
sented by the record in the light of the law involved. They may be few or 
many. A particular conclusion of law may render certain issues and find- 
ings immaterial, or vice versa. Where oral testimony is conflicting or 
subject to doubt of its credibility, the credibility of witnesses would be a 
necessary finding if the facts are material. It should also be noted that the 
relevant issues extend to matters of administrative discretion as well as of 
law and fact. This is important because agencies often determine whether 
they have power to act rather than whether their discretion should be 
exercised or how it should be exercised. Furthermore, without a 
disclosure of the basis for the exercise of, or failure to exercise, discretion, 
the parties are unable to determine what other or additional facts they 
might offer by way of rehearing or reconsideration of decisions. Sen. Rep. 
pp. 24-25, H.R. Rep. p. 39. (Sen. Doc. pp. 210-211, 273). 

An agency which issues opinions in narrative and expository 
form may continue to do so without making separate findings of 
fact and conclusions of law. However, such opinions must indicate 
the agency's findings and conclusions on material issues of fact, 
law or discretion with such specificity "as to advise the parties 
and any reviewing court of their record and legal basis."'' The 



7 Agencies should keep in mind that pursuant to section 3(b) they may cit« as 
precedents only such previous orders and opinions as have been published or made avafl- 
abla tor public inapectioiu 



Attorney General's Manual on the APA 153 




87 

requirement that such decisions indicate the reasons for the 
exercise of discretionary power is a codification of existing good 
practice. See Phelps Dodge Corp, v. National Labor Relations 
Board, 313 U.S. 177, 194-197 (1941). 

Nothing in the Act is intended to preclude agency heads 
from utilizing the services of agency employees as assistants for 
analysis and drafting. Morgan v. United States, 298 U.S. 468, 481 
(1936). Of course, in adjudicatory cases subject to section 5(c), 
such assistants could not have performed investigative or prose- 
cuting functions in the cases (or in factually related cases) in 
which they are so employed. Also, the agency heads are free to 
employ the hearing officer who heard a particular case as the 
draftsman of their final decision and otherwise to assist in its 
formulation. Compare generally section 4(a) of the National 
Labor Relations Act, as amended. 

Appeals to superior agency. Nothing in section 8 is intended 
to cut off any rights which parties may have for appeal to or 
review by a superior agency. Sen. Rep. p. 23 (Sen. Doc. p. 209). 
The requirements of subsection 8(b) as to the form and content 
of decisions do not apply to decisions of a superior agency upon 
such appeal from or review of the agency's decision. 




154 Administrative Procedure Act Appendix 

88 

VIII 
SECTION 9 — SANCTIONS AND POWERS 

Section 9 generally prohibits unauthorized action by agencies 
and prescribes certain rules to govern licensing proceedings. The 
provisions of section 9 apply to all relevant cases (other than 
the agencies and functions exempted by section 2(a) ) regardless 
of the applicability of the other sections of the Act. 

SECTION 9(a) — SANCTIONS 

Section 9(a) provides that "in the exercise of any power or 
authority no sanction shall be imposed or substantive rule or 
order be issued except within jurisdiction delegated to the agency 
and as authorized by law." The term sanction is broadly defined 
in section 2(f) to include the whole or part of any agency "(1) 
prohibition, requirement, limitation, or other condition affecting 
the freedom of any person ; (2) withholding of relief ; (3) imposi- 
tion of any form of penalty or fine; (4) destruction, taking, 
seizure, or withholding of property; (5) assessment of damages, 
reimbursement, restitution, compensation, costs, charges, or fees; 
(6) requirement, revocation, or suspension of a license;^ or (7) 
taking of other compulsory or restrictive action." 

The original draft of section 9(a) limited the imposition of 
sanctions to those **as specified and authorized by statute." 
Senate Comparative Print, June 1945, p. 17 (Sen. Doc. p. 
159). The change of the word "statute" to "law" was inten- 
tional so as to recognize that an agency may impose a sanction or 
issue a substantive rule or order if such power is authorized not 
only by statutes but by treaties, court decisions, commonly recog- 
nized administrative practices, or other law. See United States v. 
MacDaniel, 7 Pet. (32 U.S.) 1, 13-14 (1833). Both the Senate and 
House reports recognize that the source of authority for the 
imposition of a sanction or the issuance of a substantive rule or 
order may be either specific or general, as the case may be. Sen. 
Rep. p. 25, H.R. Rep. p. 40 (Sen. Doc. pp. 211, 274). 

The purpose of section 9(a) is, evidently, to assure that 
agencies will not appropriate to themselves powers Congress has 
not intended them to exercise. Section 9 (a) merely restates exist- 
ing law. Sen. Rep. p. 43 (Sen. Doc. p. 229) . Many agencies' powers 



1 The denial of an application for a renewal of a license i3 not a penal measure 
Federal Communicaticna Commission v. WOKO. 329 U.S. 223 (1946). It is, by defini- 
tion in section 2(f), a form of agency sanction. 



Attorney General's Manual on the APA 155 

89 

are very clear; they are set forth specifically in the act creating 
the agency. Still other powers may be readily inferred from the 
framework of the act creating the agency or may be logically 
necessary for the conduct of the powers granted to the agency. 
But whether an agency's powers are express or implied, in either 
case they may be exercised. Particularly pertinent in this con- 
nection is the language of the Supreme Court in Phelps Dodge 
Corp, V. National Labor Relations Board, 313 U.S. 177, 194 
(1941) : 

A statute expressive of such large public policy as that on which 
the National Labor Relations Board is based must be broadly phras- 
ed and necessarily carries with it the task of administrative applica- 
tion. There is an area plainly covered by the language of the Act and 
an area no less plainly without it. But in the nature of things Con- 
gress could not catalogue all the devices and strategems for circum- 
venting the policies of the Act. Nor could it define the whole gamut 
of remedies to eifrr^uatc these policies in an i!tfi}>ite variety of specific 
situations. Conj?ress met these difficulties by leaving the adaptation 
of means to end to the empiric process of administration.*** the rela- 
tion of remedy to policy is peculiarly a matter for administrative 
competence. [Italics supplied]. 

SECTION 9(b) — LICENSES 

Section 9(b) is composed of three sentences, each of which is 
mutually exclusive of the others. The first sentence applies 
specifically to applications for licenses, the second to suspension 
or revocation of licenses, and the third to renewals. Each of these 
will be considered separately. 

Applications for licenses. The first sentence of section 9(b) 
provides : "In any case in which application is made for a license 
required by law the agency, wuth due regard to the rights or 
privileges of all the interested parties or adversely affected 
persons and v/ith reasonable dispatch, shall set and complete any 
proceedings required to be conducted pursuant to sections 7 and 
8 of this Act or other proceecMngs required by law and shall 
make its decision." The import of this sentence is that an agency 
shall hear and decide licensing proceedings as quickly as pos- 
sible. Should the licensing proceedings be required by statute to 
be determined upon the record after opportunity for an agency 
hearing, an agency will be required to follow the provisions as to 
hearing and decision contained in sections 7 and 8 of the Act. 
As to other types of licensing proceedings, the Act does not formu- 
late any fixed procedure (just as no fixed procedure has been 
formulated for adjudications other than those that are required 




n 



156 Administrative Procedure Act Appendix 



90 

by statute to be determined on the record after opportunity for 
an agency hearing). 

The requirement that licensing proceedings be completed 
with reasonable dispatch is merely a statement of fair adminis- 
trative procedure. Congress decided not to set any maximum 
period of time for agency consideration of applications for licenses. 
In the first draft of S. 7 there was a provision to the effect that 
an application for a license would be deemed granted unless the 
agency within 60 days after the application was made, rendered 
its decision or set the matter down for hearing. Senate Compara- 
tive Print, June 1945, p. 17 (Sen. Doc. p. 159). This provision 
was dropped in later drafts and replaced with the phrase "with 
reasonable dispatch." 

The term "reasonable dispatch" is not an absolute one and 
cannot be described in precise terms. What is reasonable for one 
agency may not be reasonable for another agency. The time 
necessary to consider license applications for certificates of public 
convenience and necessity is much greater, as a rule, than that 
needed for issuing warehousemen's licenses under 7 U.S.C. 244. 
Similarly, variations in an agency's work-load, reflecting develop- 
ments in an industry, may result in unavoidable temporary back- 
logs. Of course, where another statute prescribes a specific period 
of time for agency consideration of an application for a license, 
such specific provision will be controlling. For example, under 
section 355(c) of Title 21, U.S.C, an application for a license 
for the sale of new drugs becomes effective on the sixtieth day 
after the filing of the application unless the Federal Security 
Administrator takes appropriate action. 

Suspension or revocation of licenses. The second sentence of 
section 9(b) provides: "Except in cases of willfulness or those 
in which public health, interest, or safety requires otherwise, no 
withdrawal, suspension, revocation, or annulment of any license 
shall be lawful unless, prior to the institution of agency proceed- 
ings therefor, facts or conduct which may warrant such action 
shall have been called to the attention of the licensee by the 
agency in writing and the licensee shall have been accorded op- 
portunity to demonstrate or achieve compliance with all law- 
ful requirements." This sentence requires an agency to give a 
licensee an opportunity to change his conduct before his license 
can be revoked by the agency unless the licensee's conduct is 
willful or the public health, interest or safety requires otherwise. 



Attorney General's Man^ual on the APA 157 



91 

Thus, if a particular licensee should under ordinary circumstances 
transcend the bounds of the privilege granted to him, the agency 
which has granted him the license must inform him in writing of 
such conduct and afford him an opportunity to comply with the 
requirements of the agency before it can revoke, withdraw, 
suspend or annul his license. While the warning must be in writing, 
it need not take any special form. 

No prior notice need be given if the licensee's conduct is will- 
ful. In such a situation the license may be revoked immediately 
without "another chance." Also, "another chance" need not be 
given where "the public health, interest, or safety requires other- 
wise." The latter phrase refers to a situation where immediate 
cancellation of a license is necessary in the public interest ir- 
respective "of the equities or injuries to the licensee." Sen. Rep. 
p. 26 (Sen. Doc. p. 212). For example, in case of an accident in- 
volving aircraft, the Administrator of Civil Aeronautics may 
suspend the license of the pilot pending investigation. The public 
safety and interest require such immediate suspension. 49 U.S.C. 
559. 

It is clear that the provisions of this second sentence do 
not apply to temporary permits or temporary licenses. Sen. Rep. 
p. 26, H.R. Rep. p. 41 (Sen. Doc. pp. 212, 275). Such permits or 
licenses may be revoked without "another chance" and regardless 
of whether there is willfulness or whether the public health, in- 
terest, or safety is involved. And it is clear, too, that the pro- 
visions of this sentence do not apply to renewal of licenses. Re- 
newals are treated specifically in the next sentence. 

Renewal of licenses. The last sentence of section 9(b) pro- 
vides : "In any case in which the licensee has, in accordance with 
agency rules, made timely and sufficient application for a renewal 
or a new license, no license with reference to any activity of a 
continuing nature shall expire until such application shall have 
been finally determined by the agency." This sentence states the 
best existing law and practice. Sen. Rep. p. 43 (Sen. Doc. p. 
229). It is only fair where a licensee has filed his application for 
a renewal or a new license in ample time prior to the expiration 
of his license, and where the application itself is sufficient, that 
his license should not expire until his application shall have been 
determined by the agency. In such a case the licensee has done 
everything that is within his power to do and he should not 
suffer if the agency has failed, for one reason or another, to con- 





158 Administrative Procedure Act Appendix 



92 



sider his application prior to the lapse of his license. Agencies, 
of course, may make reasonable rules requiring sufficient advance 
application.2 

2 The Office of Alien Property of the Department of Justice has adopted such a rule 
with reference to renewal of licenses. 11 F.R. 177A-629. 



Attorney General's Manual on the APA 159 

93 

IX 

SECTION 10 — JUDICIAL REVIEW 

The provisions of section 10 constitute a general restatement 
of the principles of judicial review embodied in many statutes 
and judicial decisions.^ Section 10, it must be emphasized, deals 
largely with principles. It not only does not supersede special 
statutory review proceedings, but also generally leaves the mech- 
anics of judicial review to be governed by other statutes and by 
judicial rules. For example, many statutes provide that where the 
reviewing court finds that the taking of new evidence would be 
warranted, such evidence must be presented to the agency with 
opportunity to modify its findings. See section 9 of the Securities 
Act (15 U.S.C. 77i). Such provisions continue in effect. Similarly, 
the time within which review must be sought will be governed, 
^s in the past, by relevant statutory provisions or by judicial 
application of the doctrine of laches. See Section 5(c) of the 
Federal Trade Commission Act (15 U.S.C. 45 (c) ) and U,S. ex 
rel. Arant v. Lane, 249 U.S. 367 (1919) . Accordingly, the general 
principles stated in section 10 must be carefully coordinated with 
existing statutory provisions and case law.^ 

Section 10 is applicable irrespective of whether the agency 
action for which review is sought was governed by the procedural 
provisions of sections 4, 5, 7 and 8. However, section 10 does not 
apply to those agencies and functions which are excepted by 
section 2(a) from all provisions of the Act except section 3. 
For example, the provisions of section 10 are in no way applic- 
able to the review of agency action taken pursuant to the Hous- 
ing and Rent Act of 1947. 

Section 10 became effective on September 11, 1946, and is 
applicable fron^ that date to the judicial review of agency action.' 
However, the Department of Justice, in briefs filed in the Supreme 
Court, has taken the position that section 10 does not apply to 
cases which were pending in the courts on September 11, 1946. 
While these cases were decided by the Supreme Court without 




1 See stetements of Carl McFarland, Chairman of the Committee on Administrative 
Procedure of the American Bar Association, in House Hearinsrs (1945) pp. 37-38 (Sen, Doc. 
pp. 83-84). and of the Attorney General in Sen, Rep. pp. 38, 43 (Sen, Doc. pp. 224 229) • 92 
Consr, Rec, A2982 (Sen, Doc. pp. 406-407), 

2 Recosmizing the delicacy of this problem and the obligation of Government counsel 
to render every assisUnce to the courts in this task, the Attorney General has established 
a committee within the Department of Justice to assist in developing a uniform approach 
to the problems which arise in litigation. 

3 Sec section 12 of the Act as to the effective dates of the various provisions 
of the Act. 




160 Administrative Procedure Act Appendix 



94 

any express reference to section 10, it seems fair to infer that 
the Court has accepted this construction. United States v. Ruzicka, 
329 U.S. 287 (1946) ; Board of Governors of the Federal Reserve 
System v. Agneio, 329 U.S. 441 (1947) ; Krug v. Santa Fe Pacific 
Rd, Co., 329 U.S. 591 (1947) ; Patterson v. Lamb, 329 U.S. 539 
(1947). 

SCOPE OF SECTION 10 

Section 10 applies "Except so far as (1) statutes preclude 
judicial review or (2) agency action is by law committed to 
agency discretion". The intended result of the introductory clause 
of section 10 is to restate the existing law as to the area of re- 
viewable agency action. House Hearings (1945) p. 38 (Sen. 
Doc. p. 84). 

A statute may in terms preclude, or be interpreted as intended 
to preclude, judicial review altogether. An example of a statute 
expressly precluding any judicial review is the Act of March 20, 
1933 (38 U.S.C. 705) providing that "All decisions rendered by 
the Administrator of Veterans' Affairs under the provisions [of 
designated statutory sections] shall be final and conclusive on 
all questions of law and fact, and no other official or court of the 
United States shall have jurisdiction to review by mandamus or 
otherwise any such decision." Senate Hearings (1941) p. 1358. 
Switchmen's Union of North America v. National Mediation 
Board, 320 U.S. 297 (1943), illustrates the interpretation of a 
statute as intended to preclude judicial review although the statute 
does not expressly so provide.'* Sen. Rep. pp. 43-44 (Sen. Doc. 
pp. 229-230). 

The provisions of section 10 are applicable "Except so far as 
agency action is by law committed to agency discretion." For an 
example of such unreviewable agency action, see United States v. 
George S. Bush & Co., 310 U.S. 371 (1940) (action by the Presi- 
dent under section 336(c) of the Tariff Act "if in his judgment" 
such action is necessary) . More broadly, there are many statutory 
provisions which merely authorize agencies to make loans ; under 
such statutes, the agencies' discretion is usually so complete that 
the refusal to make a loan is not reviewable under section 10 or 



4 As S. 7 was introduced in the Senate in January 1945. the introductory phraa* 
of section 10 read "Except (1) so far as statutes expressly preclude judicial review". 
[Italics supplied]. As reported in its present form by the Senate Committee on 
the Judiciary, the word "expressly" was omitted. This omission provides strong support 
for the conclusion that the courts remain free to deduce from the statutory context of 
particular agency action that the Consrress intended to preclude judicial review of aaeh 
action. 



Attorney General's Manual on the APA 161 

96 

any other statute. Also, the refusal by the National Labor Relations 
Board to issue a complaint is, as heretofore, an exercise of dis- 
cretion unreviewable by the courts. See Jacobsen v. National 
Labor Relations Board, 120 F. 2d 96 (CCA. 3, 1941), and Senate 
Comparative Print of June 1945, p. 19, para. (3) (Sen. Doc. 
p. 38). For the same reason, the denial of a petition pursuant 
to section 4(d) of this Act for the issuance, amendment or repeal 
of a rule is not subject to judicial review. Sen. Rep. p. 44 (Sen. 
Doc. p. 230) . 

In addition, the introductory clause of section 10 provides a 
most important principle of construction for reconciling the pro- 
visions of the section with other statutory provisions relating 
to judicial review. All of the provisions of section 10 are qualified 
by the introductory clause, "Except so far as (1) statutes preclude 
judicial review or (2) agency action is by law committed to 
agency discretion'' [Emphasis supplied]. The emphasized phrase 
does not mean that every provision of section 10 is applicable 
except where statutes preclude judicial review altogether. Instead, 
it reads **Except so far as (1) statutes preclude judicial review", 
with the clear result that some other statute, while not precluding 
review altogether, will have the effect of preventing the applica- 
tion of some of the provisions of section 10. The net effect, clearly 
intended by the Congress, is to provide for a dovetailing of the 
general provisions of the Administrative Procedure Act with the 
particular statutory provisions which the Congress has moulded 
for special situations.^ Thus, a civil service employee of the Federal 
Government who alleges unlawful removal from office, can obtain 
judicial review only of the question of whether the procedures of 
the Civil Service Act were followed. Levine v. Farley, 107 F. 
2d 186 (App. D.C, 1939), certiorari denied, 308 U.S. 622. In 
such a case, the provisions of section 10(e), for example, relating 
to substantial evidence and to review of abuses of discretion, 
will not apply. 

SECTION 10(a) — RIGHT OF REVIEW 

Section 10(a) provides that "Any person suffering legal 
wrong because of any agency action, or adversely affected or ag- 
grieved by such action within the meaning of any relevant 




6 This conclusion is supported by the foIlowinGT statement in the Senate ComparatiT* 
Print, p. 18 (Sen. Doc. p. 86) : "The introductory exceptions state the two present 
general or basic situations in which judicial review is precluded — where (1) the matter 
is discretionary or (2) statutes withhold judicial powert." [Italics supplied]. 



y 



162 Administrative Procedure Act Appendix 



96 



statute, shall be entitled to judicial review thereof." This state- 
ment of the persons entitled to judicial review has occasioned 
considerable comment because of the use of the phrase "any person 
suffering legal wrong". This phrase was used as one of limita- 
tion and not for the purpose of making judicial review available 
to anyone adversely affected by governmental action.^ The delicate 
problem of the draftsmen was to identify in general terms the 
persons who are entitled to judicial review. As so used, "legal 
wrong" means such wrong as particular statutes and the courts 
have recognized as constituting ground for judicial review. 
"Adversely affected or aggrieved" has frequently been used in 
statutes to designate the persons who can obtain judicial review of 
administrative action.*^ The determination of who is "adversely 
affected or aggrieved * * * within the meaning of any relevant 
statute" has "been marked out largely by the gradual judicial 
process of inclusion and exclusion, aided at times by the courts' 
judgment as to the probable legislative intent derived from the 
spirit of the statutory scheme". Final Report, p. 83 ; see also pp. 
84-85. The Attorney General advised the Senate Committee on 
the Judiciary of his understanding that section 10(a) was a re- 
statement of existing law. More specifically he indicated his 
understanding that section 10(a) preserved the rules developed 
by the courts in such cases as Alabama Power Co. v. Ickes, 302 
U.S. 464 (1938) ; Massachusetts v. Mellon, 262 U.S. 447 (1923) ; 
The Chicago Junction Case, 264 U.S. 258 (1924) ; Sprunt & 
Son v. U, S., 281 U.S. 249 (1930) ; Perkins v. Lukens Steel Co,, 
310 U.S. 113 (1940) ; and Federal Communications Commission 
V. Sanders Brs. Radio Station, 309 U.S. 470 (1940). Sen. Rep. p. 
44 (Sen. Doc. p. 230). This construction of section 10(a) was not 
questioned or contradicted in the legislative history.^ Also implied 
is the continuing role of the courts in determining, in the context 
of constitutional requirements and the particular statutory pat- 
tern, who is entitled to judicial review. 

SECTION 10(b) — FORM AND VENUE OF ACTION 

Section 10(b) provides that "The form of proceeding for 
judicial review shall be any special statutory review proceeding 



6 Compare origrinal provision of S. 7 as introduced in the Senate: "Any person ad> 
versely affected by any agency action shall be entitled to judicial review thereof in ac- 
cordance with this section." 

7 See section 9 of the Securities Act (15 U.S.C. 77i), "any person agtrrieved" : 
section 402(b)(2) of the Communications Act (46 U.S.C. 402), "person acTRrieved or 
whose interests are adversely affected"; section 1006 of the Civil Aeronautics Act (49 
U.S.C. 646). "person disclosing: a substantial interest in such order". 

8 Sec American Stevedores. Inc. v. Porello, 330 U.S. 446 (1947). 



Attorney General's Manual on the APA 163 

97 

relevant to the subject matter in any court specified by statute 
or, in the absence or inadequacy thereof, any applicable form of 
legal action (including actions for declaratory judgments or writs 
of prohibitory or mandatory injunction or habeas corpus) in any 
court of competent jurisdiction. Agency action shall be subject to 
judicial review in civil or criminal proceedings for judicial en- 
forcement except to the extent that prior, adequate, and ex- 
clusive opportunity for such review is provided by law." 

Form of action. Many regulatory statutes provide for judicial 
review of agency action by requiring the complaining party to file 
with a circuit court of appeals (or with a district court) a written 
petition praying that the agency action be modified or set aside ; 
thereafter, the agency files with the reviewing court a transcript 
of the record.* Under such statutory provisions, the filing of a 
petition to modify or set aside agency action will continue to be 
the required form of proceeding for judicial review. Similarly, 
where agency action is now reviewable pursuant to the Urgent 
Deficiencies Act of 1913 (28 U.S.C. 47), the form of proceeding 
will consist of suits to enjoin^® j^ accordance with the provisions 
of that Act. 

In the absence of any special statutory review proceedings, 
other forms of action, as heretofore found by the courts to be 
appropriate in particular situations, will be used. Thus, habeas 
corpus proceedings should be used to obtain review of exclu- 
sion and deportation orders. U.S, ex rel Vajtauer v. Commissioner 
of Immigration, 273 U.S. 103 (1927). Likewise, an order of the 
Postmaster General suspending second-class mailing privileges 
may, as before, be tested by a suit to enjoin such action. Hannegan 
V. Esquire, Inc, 327 U.S. 146 (1946). In brief, where agency 
action is reviewable, but the Congress has not specified the form 
of review, the courts will continue to select the appropriate form 
of action. 

Also, where a special statutory review proceeding is not leg- 
ally adequate, the form of proceeding for judicial review will be 
"any applicable form of legal action * * * in any court of competent 
jurisdiction". The Act does not purport to define "inadequate", 



B 



9 See section 5(c) of the Federal Trade CommiMion Act (16 U.S.C. 45(c)) ; section 9 
of the Securities Act (15 U.S.C. 77i): and section 701 of the Federal Food. Dmv and 
Cosmetic Act (21 U.S.C. 371 (f)). 

10 "The expression 'special statutory review* means not only special review proceed- 
insrs whoUy created by statute, but so-called common-law forms referred to and adopted 
by other statutes as the appropriate mode of review in ffiven cases." Sen. Rep. p. 26; H.R. 
Rep. p. 42 (Sen. Doc. pp. 212. 176). 



I 



164 Administrative Procedure Act Appendix 



98 



and thus leaves to the courts the determination of whether a 
particular statutory review proceeding is legally adequate. As 
stated by the Attorney General: "if the procedure is inadequate 
(i.e., where under existing law a court would regard the special 
statutory procedure as inadequate and would grant another form 
of relief), then any applicable procedure, such as prohibitory or 
mandatory injunction, declaratory judgment, or habeas corpus, 
is available". [Emphasis supplied]. Sen. Rep. p. 44 (Sen. Doc. 
p. 230). Thus, the Act does not provide any new definition of 
"adequate", but rather assumes that the courts will determine 
the adequacy of statutory review procedures by the legal stand- 
ards which the courts themselves have already developed. See 
Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 48 (1938). 
Venue, Section 10(b) does not purport to change existing 
venue requirements for judicial review. In fact, it specifically re- 
fers to review "in any court specified by statute", or "in any court 
of competent jurisdiction". In the report of the House Committee, 
it is stated that "The section does not alter venue provisions 
under existing law, whether in connection with specially pro- 
vided statutory review or the so-called nonstatutory or common- 
law action variety." H.R. Rep. p. 42 (Sen. Doc. p. 276). See also 
Representative Walter's statement to the House, 92 Cong. Rec. 
5654 (Sen. Doc. p. 369). Thus, for example, station and 
construction licensing orders issued by the Federal Communica- 
tions Commission remain reviewable only by the Court of Appeals 
for the District of Columbia (47 U.S.C. 402(b)). More generally, 
statutes specifically providing for judicial review in a circuit 
court of appeals or a district court often designate the venue by 
relation to the matters involved, such as "any circuit court of ap- 
peals of the United States in the circuit wherein the unfair labor 
practice in question was alleged to have been engaged in or where- 
in [the person aggrieved] resides or transacts business, or in the 
Court of Appeals of the District of Columbia". (Section 10(f) of 
the National Labor Relations Act) ." Such provisions are contin- 
ued in effect. So also are the general statutory provisions concern- 
ing venue, such as 28 U.S.C. 112 that "no civil suit shall be brought 
in any district court against any person by any original process 
or proceeding in any other district than that whereof he is 
an inhabitant". For the application of this section to suits against 



11 For other examples, see 28 U.S.C. 43 for venue of suits to enjoin orders of the 
Interstate Commerce Commission, section 1006(b) of the Civil Aeronautics Act (49 U.S.C. 
646(b)). and section 21 of the Longshoremen's and Harbor Workers' Compensation Act 
(83 U.S.C. 921). 



Attorney General's Manual on the APA 165 

99 

Government agencies, see Kentucky Natural Gas Corp. v. Public 
Service Comm,, 28 F. Supp. 509, affirmed 119 F. 2d 417 (CCA. 6, 
1941) ; and Scientific Mfg. Co, v. Walker, 40 F. Supp. 465 (M.D. 
Pa. 1941). 

Review in enforcement proceedings. Section 10(b) also pro- 
vides that "Agency action shall be subject to judicial review in 
civil or criminal proceedings for judicial enforcement except to 
the extent that prior, adequate, and exclusive opportunity for 
such review is provided by law". In the Committee reports it is 
stated that "The provision respecting *prior, adequate, and ex- 
clusive * ♦ ♦ review' in the second sentence is operative only 
where statutes, either expressly or as they are interpreted, re- 
quire parties to resort to some special statutory form of judicial 
review which is prior in time and adequate to the case.*' [Em- 
phasis supplied]. Sen. Rep. p. 27; H.R. Rep. p. 42 (Sen. Doc. 
pp. 213, 276). So interpreted, this provision restates existing 
law.i2 Thus, a statute may either expressly provide for an ex- 
clusive method of judicial review which precludes challenge of 
agency action in enforcement proceedings,^' or a court may 
conclude from the statutory context that such was the legislative 
intention. United States v. Ruzicka, 329 U.S. 287 (1946), inter- 
preting the Agricultural Marketing Agreement Act of 1937, is an 
excellent example of the latter situation.^* Similarly, section 10 (b) 
leaves intact the doctrine of primary jurisdiction developed by 
the courts in cases involving the reasonableness of the charges of 
carriers and public utilities. See Ambassador, Inc, v. United States, 
325 U.S. 317 (1945). It also leaves intact the requirements of the 
doctrine of exhaustion of administrative remedies. In many situa- 
tions, however, an appropriate method of attacking the validity 
of agency action is to set up the alleged invalidity as a defense in 
a civil or criminal enforcement proceeding. 

The adequacy of an exclusive method for judicial review would 
appear to be governed by the same considerations as the courts 
would apply in determining the adequacy or inadequacy of a 




12 The Senate Committee changed the last phrase of the provision from "provided 
by statute" to "provided by law". See also Senate Comparative Print, June 1946. p. 
18 (Sen. Doe. p. 37). stating: that "The second sentence states the present rule as to 
enforcement proceedingrs." See Representative Walter's statement to the House, 92 Cong. 
Rec. 6C64 (Sen. Doc. p. 369) : "These provisions summarize the situation as It is now 
generally understood. The section does not disturb special proceedings which Congress 
ha* provided, nor does it disturb the venue arrangements under existing law." 

13 See section 204(d) of the Emergency Price Control Act of 1942. 

14 See also WaUing v. Cohen. 48 F. Supp. 859 (E.D. Pa. 1943), affirmed 140 F. 2d 
463 (CCA. 3, 1944) under the Fair Labor Standards Act. and Piuma v. United State; 
126 F. 2d 601 (CCA. 9, 1942), certiorari denied, 317 U.S. 637, under the Federal Trade 
Commission Act. 



166 Administrative Procedure Act Appendix 



100 

statutory review proceeding for the purposes of the first sentence 
of section 10(b). Thus, the use of the word "prior" in the last 
sentence of section 10(b) does not mean that the validity of 
agency action may always be challenged collaterally by way of 
defense in enforcement proceedings whenever the method of 
review specified by the Congress does not result in a judicial 
determination as to the validity of such action prior to the 
commencement of enforcement proceedings. As indicated above, 
the Congress intended section 10 as a whole to be integrated 
and reconciled with existing statutory provisions for judicial 
review. Specifically, the general principle stated in the last sentence 
of section 10(b) was not regarded by the Congress as an 
innovation. Rather, it was said that "The second sentence states 
the present rule as to enforcement proceedings." Senate Com- 
parative Print, p. 18 (Sen. Doc. p. 37). And further: "These 
provisions summarize the situation as it is now generally under- 
stood. The section [10(b)] does not disturb special proceedings 
which Congress has provided, nor does it disturb the venue 
arrangements under existing law." Representative Walter, 92 
Cong. Rec. 5654 (Sen. Doc. p. 369). 

There are many situations in which the invalidity of agency 
action may be set up as a defense in enforcement proceedings. 
On the other hand, there are special statutory arrangements 
under which the Congress has provided for immediate and con- 
tinuous enforcement while the exclusive route to judicial review 
is by first exhausting an administrative procedure; in such an 
agency proceeding, the agency and the parties make a record with 
a view toward (a) reconsideration by the agency itself, and (b) 
providing an adequate factual record as the basis for judicial 
review by a specified court. See United States v. Ruzicka, supra. 
There is nothing to indicate that the Congress intended to re- 
peal by implication such special statutory arrangements for com- 
pliance pending orderly judicial review, or to preclude itself from 
making similar arrangements in the future. Similarly, it is be- 
lieved that the courts are left free to apply the primary juris- 
diction doctrine in enforcement proceedings so as to require 
issues relating to the alleged unreasonableness of filed tariffs to 
be first presented to the appropriate administrative agency rather 
than to an enforcement court. See Ambassador, Inc. v. United 
States, supra. In brief, the courts must determine in each case 
whether the Congress, by establishing a special review procedure, 



Attorney General's Manual on the APA 167 



101 

intended to preclude or to permit judicial review of agency action 
in enforcement proceedings. And, the extent to which the "op- 
portunity" for judicial review prior to the enforcement proceed- 
ings has been waived or disregarded by the defendant in those 
proceedings must also be considered. 

SECTION 10(c) — ^REVIEWABLE ACTS 

The provisions of this subsection defining agency action sub- 
ject to judicial review are said to "involve no departure from the 
usual and well understood rules of procedure in this field". Repre- 
sentative Walter, 92 Cong. Rec. 5654 (Sen. Doc. p. 369) ; Sen. Rep. 
p. 44 (Sen. Doc. p. 230). 

First, it is provided that "Every agency action made reviewable 
by statute and every final agency action for which there is no 
other adequate remedy in any court shall be subject to judicial 
review." Many statutes specifically provide for judicial review 
of particular agency action, and such action will continue to be 
reviewable. The second category, "and every final agency action 
for which there is no other adequate remedy in any court", must 
be interpreted in the light of other statutory and case law. To 
begin with, of course, it does not make reviewable agency action 
as to which "(1) statutes preclude judicial review or (2) agency 
action is by law committed to agency discretion." Furthermore, 
this provision does not provide additional judicial remedies in 
situations where the Congress has provided special and adequate 
review procedures. See the first clause of section 10(b). Thus, 
the Customs Court and the Court of Customs and Patent Appeals 
retain their present exclusive jurisdictions.^^ 

"Agency action", as used in section 10, is defined in section 
2 (g) as including "the whole or part of every agency rule, order, 
license, sanction, relief, or the equivalent or denial thereof, or 
failure to act." Sen. Rep. p. 11; H.R. Rep. p. 21 (Sen. Doc. pp. 
197, 255). While "final", as used to designate reviewable agency 
action, is not defined in the Act, its meaning may be gleaned from 
the second and third sentences of section 10(c). Moreover, many 
regulatory statutes, either expressly or as they are interpreted, 
have provided for review of (and only of) "final" agency orders, 
with the result that the judicial construction of such provisions 




16 In the Attorney General's memorandnm to the Senate Committee, he itated 
that " 'Courts' includes the Tax Coort, Court of Customs and Patent Appeals, the Court 
of Claims, and similar courts. This act doca not apply to their procedure nor affect th« 
requirement of resort thereto." Sen. Rep. p. 38 (Sen. Doc. p. 224). 



y 



168 Administrative Procedure Act Appendix 



102 



will carry over to the interpretation of "final" as used in section 
10(b). See Rochester Telephone Corp. v. United States, 307 U.S. 
125 (1939). 

Since "agency action" is defined to include "rule", the ques- 
tion arises as to whether the phrase, "final agency action for which 
there is no other adequate remedy in any court", provides for 
direct judicial review of all rules. Many statutes which give rule 
making powers (particularly rules of general applicability) to 
agencies make no provision for judicial review of such rules. 
The validity of such rules has generally been open to challenge in 
proceedings for their enforcement. In addition, it has been sug- 
gested that in appropriate circumstances, review could be obtained 
in proceedings under the Declaratory Judgment Act (28 U.S.C. 
400). It is clear from the legislative history that section 10(c) 
was not intended to provide for judicial review in the abstract 
of all rules. Representative Walter stated to the House that "The 
provisions of this [sub] section are technical but involve no de- 
parture from the usual and well understood rules of procedure 
in this field." 92 Cong. Rec. 5654 (Sen. Doc. p. 369). Also, 
during the Senate Hearings in 1941, the subect of judicial 
review of rules was thoroughly discussed. Two of the bills then 
pending provided for direct judicial review of rules by declaratory 
judgment proceedings. (See S. 674 and S. 918). The inclusion 
of such a provision was strongly advocated by a minority of 
the Attorney GeneraFs Committee on Administrative Procedure 
who stated that their purpose was — 

to adapt declaratory judgment procedure to this special subject. The 
minority feels that it is unnecessary and unwise to provide for court re- 
view (except where otherwise required by particular statutes) of rules in 
the abstract. On the other hand, such review upon the application of the 



rule to a particular person, or upon accepted principles of declaratory 

' In" " 

under the Declaratory Judgments Act of 1934, any person may now 



judgment, should be expressly recognized. In his letter accompanying the 
veto of the Logan- Walter bill, the Attorney General stated that — 



obtain a judgment as to the validity of such administrative rules, 
if he can show such an interest and present injury therefrom as to 
constitute a "case or controversy." 
However, the Declaratory Judgments Act does not altogether fit the 
subject and needs some limitation (not, it may be noted, extension) to 
care for the determination of fact issues, since under the Declaratory 
Judgments Act juries determine the facts under instructions from the 
presiding judge. In adapting declaratory judgment procedure to this 
field, some special provision must be made for the determination of 
facts, for otherwise the facts in the first instance would be determined 
through judicial rather than administrative process. (Senate Hearings 
(1941) pp. 1844. 1386.) 
In other words, even the proponents of detailed provisions for 
judicial review of rules did not intend to prescribe an abstract form 



Attorney General's Manual on the APA 169 



103 



of review going far beyond the limitations of the Declaratory 
Judgment Act. Thus, it is fair to conclude that the general state- 
ment in the first sentence of section 10(c) was not intended to 
achieve such a result. 

The second sentence of section 10(c) provides that "Any 
preliminary, procedural, or intermediate agency action or ruling 
not directly reviewable shall be subject to review upon the re- 
view of the final agency action." This language was designed "to 
negative any intention to make reviewable merely preliminary or 
procedural orders where there is a subsequent and adequate 
remedy at law available, as is presently the rule." Senate Com- 
parative Print, June 1945, p. 19" (Sen. Doc. p. 37). For ex- 
ample, intermediate orders such as orders setting matters for 
hearing are not reviewable either directly (Federal Power 
Commission v. Metropolitan Edison Co., 304 U.S. 375 (1938)) or 
collaterally, as by suits for injunction (Myers v. Bethlehem Ship- 
building Corp., 303 U.S. 41 (1938)) or declaratory judgment 
(Macatdey v. Waterman S. S. Co., 327 U.S. 540 (1946) ; Federal 
Power Commission v. Arkansas Power & Light Co., per curiam, 
330 U. S. 802 (1947)). The provision for review of such ques- 
tions as a part of the review of final agency action restates 
existing practice. See section 10(e) (4). 

Section 10(c) further provides that "Except as otherwise 
expressly required by statute, agency action otherwise final shall 
be final for the purposes of this subsection whether or not there 
has been presented or determined any application for a declaratory 
order, for any form of reconsideration, or (unless the agency 
otherwise requires by rule and provides that the action mean- 
while shall be inoperative) for an appeal to superior agency au- 
thority." This provision, together with the preceding sentence 
of the subsection, embodies the doctrine of exhaustion of adminis- 
trative remedies. H.R. Rep. p. 55, fn. 21 (Sen. Doc. p. 289). 
Agency action which is finally operative and decisive is review- 
able. On the other hand, "Action which is automatically stayable 
on further proceedings invoked by a party is not final." H.R. 
Rep. p. 43 (Sen. Doc. p. 277). 

It is specifically provided that agency action otherwise final 
is final for the purposes of the subsection notwithstanding a 
party's failure to apply for any form of agency reconsideration 
(reopening, rehearing, etc.), unless a statute expressly requires 

16 See Final Report, pp. 86-86. 



170 Administrative Procedure Act Appendix 



104 



an application for such reconsideration as a prerequisite to 
judicial review. Under statutes such as the Federal Power Act 
(16 U.S.C. 791, 8251) and the Natural Gas Act (15 U.S.C. 717r) 
which expressly require that such reconsideration be sought, 
the filing of an application for reconsideration will continue to be 
a condition precedent to judicial review. In addition, it would 
seem that under the common statutory provision that no objec- 
tion to agency action not urged before the agency shall be con- 
sidered by the courts, an application for agency reconsideration 
remains a prerequisite to obtaining judicial review of such an 
objection. See 15 U.S.C. 77 (i) and 49 U.S.C. 646(e). However, 
under a statute which merely confers upon parties the right to 
apply for rehearing, it is now clear that an application for such 
reconsideration need not precede judicial review. See generally, 
as to the effect of agency rules in this field. Levers v. Anderson, 
326 U.S. 219 (1945). 

The last clause of section 10(c) relates to two situations. 
First, pursuant to section 8(a), an agency may permit its hearing 
examiners to make initial decisions which will become the agency's 
final decisions in the absence of an appeal to or review by the 
agency. The last clause of section 10(c) permits an agency to 
require by rule that in such cases parties who are dissatisfied with 
the "initial" decisions of hearing officers must appeal to the agency 
before seeking judicial review, but only if the agency further pro- 
vides that the hearing officers* decisions shall be inoperative pend- 
ing such administrative appeals. Thus, an agency with licensing 
powers may by rule require a party to appeal to it from an initial 
decision of a hearing officer only if, for example, the license 
suspension or revocation determined upon by the hearing officer is 
held in abeyance pending the agency's action on the appeal. Sen. 
Rep. p. 27; H.R. Rep. pp. 43, 55, fn. 21 (Sen. Doc. pp. 213, 277, 
289). 

The second and similar application of the last clause of section 
10(c) relates to appeals from agency decisions to a superior 
agency authority. For example, under some circumstances, it 
would seem that a bureau or other subdivision within an agency 
may itself be the agency with respect to a particular function. 
In such a situation, it may be desired to require appeal from the 
bureau's decision to the department head or other "superior 
agency authority" as a prerequisite to judicial review. Under 
section 10(c), such a requirement may be imposed, but only, as 



Attorney General's Manual on the AP A 1 7 1 

105 

in the case of required appeals from hearing officers' initial de- 
cisions, if the agency's decision is inoperative pending such ap- 
peal. Sen. Rep. p. 27; H.R. Rep. p. 43 (Sen. Doc. pp. 213, 277). 
The requirement that agency action be inoperative pending 
required appeals to the agency or to superior agency authority 
does not require the agency to take positive action for the benefit 
of an applicant. It was not intended to require the issuance of 
licenses or the payment of benefits in any case where an agency 
requires that the denial of licenses or benefits be appealed to it 
or to superior agency authority as a prerequisite to judicial 
review.^'' 

SECTION 10(d) — INTERIM RELIEF 

Section 10(d) provides that "Pending judicial review any 
agency is authorized, where it finds that justice so requires, to 
postpone the effective date of any action taken by it. Upon such 
conditions as may be required and to the extent necessary to 
prevent irreparable injury, every reviewing court (including 
every court to which a case may be taken on appeal from or upon 
application for certiorari or other writ to a reviewing court) is 
authorized to issue all necessary and appropriate process to 
iwstpone the effective date of any agency action or to preserve 
status or rights pending conclusion of the review proceedings." 
The first sentence of the subsection is a restatement of exist- 
ing law. 

The second sentence of section 10(d) confers upon every 
"reviewing court" discretionary authority to stay agency action 
pending judicial review "to the extent necessary to prevent ir- 
reparable injury." The function of such a power is, as heretofore, 
to make judicial review effective. Sen. Rep. p. 27 ; H.R. Rep. p. 43 
(Sen. Doc. pp. 213, 277). Scripps-Howard Radio, Inc, v. Federal 
Communications Commission, 316 U.S. 4 (1942). The subsection 
does not permit a court to order the grant of an initial license 
pending judicial review of an agency's denial of such a license. 
Sen. Rep. p. 27; H.R. Rep. p. 43 (Sen. Doc. pp. 213, 277). By 
the same logic, the subsection does not give to reviewing courts 
the power to order interim payment of grants or benefits the de- 
nial of which is the subject of review. 



D 



17 This conclusion is corollsirr to the foUowinr statement made with respect to 
section 10(d) : "This section permits either airencies or courts, if the proper showing b« 
made, to maintain the statiis quo. While it would not permit a court to ffrant an initial 
license, it provides intermediate judicial relief for every other situation in order to mako 
Judicial review effective." Sen. Rep. p. 27, H.R. Rep. p. 43 (Sen. Doc. pp. 213, 277). 




172 Administrative Procedure Act Appendix 

106 

The stay power conferred upon reviewing courts is to be 
exercised only "to the extent necessary to prevent irreparable 
injury." In other words, irreparable injury, the historic condi- 
tion of equity jurisdiction, is the indispensable condition to the 
exercise of the power conferred by section 10(d) upon reviewing 
courts. Sen. Rep. p. 44 (Sen. Doc. p. 230). Mere maintenance of 
the status quo for the convenience of parties pending judicial 
review of agency action will not be adequate ground for the 
exercise of this stay power.^^ 

This power to stay agency action is an equitable power, to 
be exercised "upon such conditions as may be required." Section 
10(d) does not require the issuance of stay orders automatically 
upon a showing of irreparable damage. As in the past, reviewing 
courts may "balance the equities" in determining whether to 
postpone the effective date of agency action. Thus, "In determin- 
ing whether agency action should be postponed, the court should 
take into account that persons other than parties may be adversely 
affected by such postponement and in such cases the party seeking 
postponement may be required to furnish security to protect such 
other persons from loss resulting from postponement." H.R. Rep. 
p. 43 (Sen. Doc. p. 277). More broadly, it is clear that a reviewing 
court in exercising this power may do so under such conditions 
as the equities of the situation may require. 

The "reviewing court" in which section 10(d) vests the 
power to stay agency action is the court, and only that court, 
which has obtained jurisdiction to review the final agency action 
in accordance with subsections (b) and (c) and the applicable pro- 
visions of particular statutes.^® Section 10(d) confers no power 
upon a court in advance of the submission to it of final agency 
action for review on the merits. See Federal Power Commission 
V. Metropolitan Edison Co., 304 U.S. 375, 383 (1938). This is the 
only logical conclusion to be drawn from the employment of the 
phrase "reviewing court", rather than "any court." Any other 
construction would twist section 10(d) into a general grant 
of power to the Federal courts to review all kinds of questions pre- 
sented by preliminary and intermediate agency action. The 
specific provisions of section 10(c) defining reviewable action 
negate such a result. The legislative history of section 10(d) is 



18 This distinction and the Congressional intent with respect to it are clearly illustrated 
br the fact that when 8. 7 was introduced in the Senate, it read : "to the extent necessary to 
preserve status or rights, afford an opportunity for judicial review of any question of law 
or prevent irreparable Injury." [Emphasis supplied] 

19 This was the holding in Avon Dairy Company v. Eiaaman, 69 F. Sapp. 600 (N. 
D. Ohio. 1946). 



Attorney General's Manual on the APA 173 

107 

equally persuasive ; as S. 7 was introduced in the Senate, section 
10(d) provided for its exercise "to the extent necessary to * * * 
afford an opportunity for judicial review of any question of law 
or prevent irreparable injury." The italicized language was 
dropped by the Senate Committee, which reported the subsection 
in its present form. Finally, section 10(d) provides that the re- 
viewing court may "issue all necessary and appropriate process 
to postpone the effective date of any agency action or to preserve 
status or rights pending conclusion of the review proceedings.** 
[Emphasis supplied]. The italicized language is conclusive 
that the stay power conferred by the subsection is only ancil- 
lary to review proceedings — proceedings in which the court is 
reviewing final agency action within the meaning of section 10(c) . 
Section 10(d) prescribes no procedure for the exercise of 
the power which it confers upon reviewing courts to postpone the 
effective date of agency action. Section 381 of Title 28, U.S. 
Code,2o contains general procedural provisions governing the 
issuance of preliminary injunctions and restraining orders. 
Since these procedural provisions are in no way inconsistent with 
section 10(d), they appear to be applicable to the exercise of the 
power conferred by that subsection. Similarly, the provisions of 
the Urgent Deficiencies Act (28 U.S.C. 47), governing the pro- 
cedure for the issuance of interlocutory injunctions and tempor- 
ary stays, remain applicable in proceedings for judicial review 
under that Act. 

SECTION 10(e) — SCOPE OF REVIEW 
The scope of judicial review is defined in section 10(e) as 
follows : 

So far as necessary to decision and where presented the reviewing 
court shall decide all relevant questions of law, interpret constitu- 
tional and statutory provisions, and determine the meaning or appli- 
cability of the terms of any agency action. It shall (A) compel agency 
action unlawfully withheld or unreasonably delayed; and (B) hold 
unlawful and set aside agency action, findings, and conclusions found 
to be (1) arbitrary, capricious, an abuse of discretion, or otherwise 
not in accordance with law; (2) contrary to constitutional right, 
power, privilege, or immunity; (3) in excess of statutory jurisdiction, 
authority, or limitations, or short of statutory right; (4) without ob- 
servance of procedure required by law; (5) unsupported by substan- 
tial evidence in any case subject to the requirements of sections 7 and 
8 or otherwise reviewed on the record of an agency hearing provided 
by statute; or (6) unwarranted by the facts to the extent that the 
facts are subject to trial de novo by the reviewing court. In making 
the foregoing determinations the court shall review the whole record 
or such portions thereof as may be cited by any party, and due ac- 
count shall be taken of the rule of prejudicial error. 




20 See alao Rule 66 of the Federal Rules of Civil Procedure. 




174 Administrative Procedure Act Appendix 



108 

This restates the present law as to the scope of judicial review. 
Senate Comparative Print, June 1945, p. 202i (Sen. Doc. p. 39) ; 
House Hearings (1945) pp. 37-38 (Sen. Doc. pp. 83-84) ; Sen. 
Rep. pp. 38, 43, 44 (Sen. Doc. pp. 224, 229, 230). 

Clause (A) authorizing a reviewing court to "compel agency 
action unlawfully withheld or unreasonably delayed", appears 
to be a particularized restatement of existing judicial practice 
under section 262 of the Judicial Code (28 U.S.C. 377). Safeway 
Stores, Inc. v. Brown, 138 F. 2d 278 (E.C.A., 1943), certiorari 
denied, 320 U.S. 797. The power thus stated is vested in "the 
reviewing court", which, in this context, would seem to be the 
court which has or would have jurisdiction to review the final 
agency action. See Roche v. Evaporated Milk Ass*n., 319 U.S. 21, 
25 (1943). Orders in the nature of a writ of mandamus have been 
employed to compel an administrative agency to act, Safeway 
Stores, Inc, v. Brown, supra, or to assume jurisdiction, Interstate 
Commerce Commission v. United States ex rel, Humboldt Steam- 
ship Co,, 224 U.S. 474 (1912), or to compel an agency or officer 
to perform a ministerial or non-discretionary act. Clause (A) of 
section 10(e) was apparently intended to codify these judicial 
functions. 

Obviously, the clause does not purport to empower a court 
to substitute its discretion for that of an administrative agency 
and thus exercise administrative duties. In fact, with respect to 
constitutional courts, it could not do so. Keller v. Potomac Electric 
Power Co,, 261 U.S. 428 (1923) ; Postum Cereal Co. v. Calif- 
fomia Fig Nut Co,, 272 U.S. 693 (1927) ; Federal Radio Com- 
mission V. General Electric Co,, 281 U.S. 464 (1930). However, 
as in Safeway Stores v. Brown, supra, a court may require an 
agency to take action upon a matter, without directing how it 
shall act. 

The numbered clauses of section 10(e) (B) restate the scope 
of the judicial function in reviewing final agency action. Sen. 
Rep. p. 44 (Sen. Doc. p. 230) ; Senate Hearings (1941) pp. 1150, 
1351, 1400, 1437. Courts having jurisdiction have always exer- 
cised the power in appropriate cases to set aside agency action 
which they found to be "(1) arbitrary, capricious, an abuse of 
discretion, or otherwise not in accordance with law; (2) con- 
trary to constitutional right, power, privilege, or immunity; (3) 
in excess of statutory jurisdiction, authority, or limitations, or 



21 "SubaeetloB (•), tbercfor*, ■•ekj merely to restate the teveral eetecories of Uw 
•nbjeet to jadieial reWew.** * 



Attorney General's Manual on the APA 175 



109 

short of statutory right; (4) without observance of procedure 
required by law." 

Clause (5) directs reviewing courts to "hold unlawful and 
set aside agency action, findings, and conclusions found to be * * * 
unsupported by substantial evidence in any case subject to the 
requirements of sections 7 and 8 or otherwise reviewed on the 
record of an agency hearing provided by statute." This is a 
general codification of the substantial evidence rule which, either 
by statute or judicial rule, has long been applied to the review of 
Federal administrative action. Consolidated Edison Co. v. Na- 
tional Labor Relations Board, 305 U.S. 197 (1938) ; National 
Labor Relations Board v. Remington Rand, 94 F. 2d 862 (CCA. 
2, 1938). It will be noted that this codified substantial evidence 
rule is made applicable not only to cases governed by sections 7 
and 8, but also to those types of cases in which statutes provide 
for agency hearings, but which b exempted from sections 
7 and 8 by the introductory clause of section 5. 

As to clause (6), the legislative history has resulted in mis- 
understanding. As S. 7 was introduced in the Senate, clause (6) 
was followed by a provision that "The relevant facts shall be 
tried and determined de novo by the original court of review in 
all cases in which adjudications are not required by statute to be 
made upon agency hearing." When S. 7 was reported by the 
Senate Committee, the quoted provision was omitted. Notwith- 
standing, the subsequent legislative history contains repeated 
statements to the effect that clause (6) embodies the "established 
rule * * * [which requires a judicial] trial de novo to establish the 
relevant facts as to the applicability of any rule and as to the 
propriety of adjudications where there is no statutory adminis- 
trative hearing." Senate Comparative Print, June 1945, p. 20 
(Sen. Doc. pp. 39-40) ; H.R. Rep. p. 45 (Sen. Doc. p. 279). 

To the contrary, the language of clause (6), "to the extent 
that the facts are subject to trial de novo by the reviewing court", 
obviously refers only to those existing situations in which judicial 
review has consisted of a trial de novo. For example, reparation 
orders under the Interstate Commerce Act and the Packers and 
Stockyards Act have only prima facie weight and are thus re- 
viewable de novo. In addition, there is no "established rule" re- 
quiring a judicial trial de novo wherever statutes fail to require 
an agency hearing. Thus, in deportation (8 U.S.C 155) and mail 
fraud (39 U.S.C. 259) cases, hearings are held as a matter of 




B 



^ '^^ Administrative Procedure Act Appendix 



110 

due process although the statutes do not require agency hearings. 
In both types of cases, the judicial review of agency action has 
consisted of a review of the record made in the agency pro- 
ceeding to determine whether the agency action is supported by 
evidence.22 Accordingly, since clause (6) of section 10(e) pre- 
scribes a judicial trial de novo only in situations where other 
statutes or the courts have prescribed such review, it is clear 
that deportation and mail fraud orders will continue to be re- 
viewable on the record made in the agency hearing, even though 
such hearing is not required by statute. Also, in National Broad- 
casting Company v. United States, 319 U.S. 190, 227 (1943), it 
was held that a trial de novo was not appropriate where, prior to 
the issuance of general regulations, the agency conducted a formal 
hearing although not required by statute to do so. 

Finally, section 10(e) provides that "In making the foregoing 
determinations the court shall review the whole record or such 
portions thereof as may be cited by any party, and due account 
shall be taken of the rule of prejudicial error." This appears to 
restate existing law. Specifically, the phrase "whole record" 
was not intended to require reviewing courts to weigh the evi- 
dence and make independent findings of fact; rather, it means 
that in determining whether agency action is supported by sub- 
stantial evidence, the reviewing court should consider all of the 
evidence and not merely the evidence favoring one side. Senate 
Hearings (1941) p. 1359. 

The last phrase of section 10(e) sums up in succinct fashion 
the "harmless error" rule applied by the courts in the review of 
lower court decisions as well as of administrative bodies, namely, 
that errors which have no substantial bearing on the ultimate 
rights of the parties will be disregarded. Market Street Ry, v. 
Common,, 324 U.S. 548, 561-2 (1945). 



22 Vajtauer v. Commi*»umer, 273 U.S. 103, 106 (1927) and Bridget ▼. Wixon, 826 
U.S. 136, 149 (1945) (deportation). In deportation proceeding, a judicial trial d« novo 
may be had on the Issue of citizenship. Keatler ▼. Strecker, 307 U.S. 22. 35 (1939). See 
Farley v. Simmons. 99 F. 2d 843. 847 (App. D.C. 1938) certiorari denied, 805 U.S. 651. 
for review of mail fraud orders; also Senate Hearings. (1941) p. 59. 



Attorney General's Manual on the APA 177 

111 

APPENDIX A 

[Public Law 404— 79th Congress] 
[Chapter 324 — 2d Session] 

[S. 7] 

AN ACT 

To improve the administration of justice by prescribing fair administrative 

procedure. 

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 

TITLE 

Section 1. This Act may be cited as the "Administrative 
Procedure Act". 

Definitions 

Sec. 2. As used in this Act — 

(a) Agency. — "Agency" means each authority (whether or 
not within or subject to review by another agency) of the Govern- 
ment of the United States other than Congress, the courts, or 
the governments of the possessions. Territories, or the District 
of Columbia. Nothing in this Act shall be construed to repeal 
delegations of authority as provided by law. Except as to the 
requirements of section 3, there shall be excluded from the oper- 
ation of this Act (1) agencies composed of representatives of 
the parties or of representatives of organizations of the parties 
to the disputes determined by them, (2) courts martial and mil- 
itary commissions, (3) military or naval authority exercised in the 
field in time of war or in occupied territory, or (4) functions 
which by law expire on the termination of present hostilities, 
within any fixed period thereafter, or before July 1, 1947, and 
the functions conferred by the following statutes : Selective Train- 
ing and Service Act of 1940; Contract Settlement Act of 1944; 
Surplus Property Act of 1944. 

(b) Person and party. — "Person" includes individuals, part- 
nerships, corporations, associations, or public or private organi- 
zations of any character other than agencies. "Party" includes 
any person or agency named or admitted as a party, or properly 
seeking and entitled as of right to be admitted as a party, in any 




B 



178 Administrative Procedure Act Appendix 

112 

agency proceeding; but nothing herein shall be construed to pre- 
vent an agency from admitting any person or agency as a party 
for limited purposes. 

(c) Rule and rule making. — "Rule" means the whole or any 
part of any agency statement of general or particular applicability 
and future effect designed to implement, interpret, or prescribe 
law or policy or to describe the organization, procedure, or prac- 
tice requirements of any agency and includes the approval or 
perscription for the future of rates, wages, corporate or financial 
structures or reorganizations thereof, prices, facilities, appli- 
ances, services or allowances therefor or of valuations, costs, or 
accounting, or practices bearing upon any of the foregoing. "Rule 
making" means agency process for the formulation, amendment, 
or repeal of a rule. 

(d) Order and adjudication. — "Order" means the whole or 
any part of the final disposition (whether aflfirmative, negative, 
injunctive, or declaratory in form) of any agency in any matter 
other than rule making but including licensing. "Adjudication" 
means agency process for the formulation of an order. 

(e) License and licensing. — "License" includes the whole or 
part of any agency permit, certificate, approval, registration, 
charter, membership, statutory exemption or other form of per- 
mission. "Licensing" includes agency process respecting the grant, 
renewal, denial, revocation, suspension, annulment, withdrawal, 
limitation amendment, modification, or conditioning of a license. 

(f) Sanction and relief. — "Sanction" includes the whole or 
part of any agency (1) prohibition, requirement, limitation, or 
other condition affecting the freedom of any person; (2) with- 
holding of relief; (3) imposition of any form of penalty or fine; 
(4) destruction, taking, seizure, or withholding of property; (5) 
assessment of damages, reimbursement, restitution, compensation, 
costs, charges, or fees; (6) requirement, revocation, or suspension 
t)f a license; or (7) taking of other compulsory or restrictive 
action. "Relief" includes the whole or part of any agency (1) 
grant of money, assistance, license, authority, exemption, ex- 
ception, privilege, or remedy; (2) recognition of any claim, right, 
immunity, privilege, exemption, or exception; or (3) taking of 
any other action upon the application or petition of, and bene- 
ficial to, any person. 

(g) Agency proceeding and action. — "Agency proceeding" 
means any agency process as defined in subsections (c), (d), and 




Attorney General's Manual on the APA 



(e) of this section. "Agency action" includes the whole or part of 
every agency rule, order, license, sanction, relief, or the equivalent 
or denial thereof, or failure to act. 

Public Information 

Sec. 3. Except to the extent that there is involved (1) any 
function of the United States requiring secrecy in the public 
interest or (2) any matter relating solely to the internal manage- 
ment of an agency — 

(a) Rules. — Every agency shall separately state and cur- 
rently publish in the Federal Register (1) descriptions of its 
central and field organization including delegations by the agency 
of final authority and the established places at which, and methods 
whereby, the public may secure information or make submittals or 
requests; (2) statements of the general course and method by 
which its functions are channeled and determined, including the 
nature and requirements of all formal or informal procedures 
available as well as forms and instructions as to the scope and 
contents of all papers, reports, or examinations; and (3) sub- 
stantive rules adopted as authorized by law and statements of 
general policy or interpretations formulated and adopted by the 
agency for the guidance of the public, but not rules addressed to 
and served upon named persons in accordance with law. No 
person shall in any manner be required to resort to organization 
or procedure not so published. 

(b) Opinions and orders. — Every agency shall publish or, in 
accordance with published rule, make available to public inspec- 
tion all final opinions or orders in the adjudication of cases (ex- 
cept those required for good cause to be held confidential and not 
cited as precedents) and all rules. 

(c) Public records. — Save as otherwise required by statute, 
matters of oflficial record shall in accordance with published rule 
be made available to persons properly and directly concerned ex- 
cept information held confidential for good cause found. 

Rule Making 

Sec. 4. Except to the extent that there is involved (1) any 
military, naval, or foreign affairs function of the United States 
or (2) any matter relating to agency management or personnel 
or to public property, loans, grants, benefits, or contracts — 




180 Administrative Procedure Act Appendix 



114 

(a) Notice. — General notice of proposed rule making shall 
be published in the Federal Register (unless all persons subject 
thereto are named and either personally served or otherwise have 
actual notice thereof in accordance with law) and shall include 

(1) a statement of the time, place, and nature of public rule 
making proceedings; (2) reference to the authority under which 
the rule is proposed; and (3) either the terms or substance of the 
proposed rule or a description of the subjects and issues involved. 
Except where notice or hearing is required by statute, this sub- 
section shall not apply to interpretative rules, general statements 
of policy, rules of agency organization, procedure, or practice, 
or in any situation in which the agency for good cause finds (and 
incorporates the finding and a brief statement of the reasons 
therefor in rules issued) that notice and public procedure thereon 
are impracticable, unnecessary, or contrary to the public interest. 

(b) Procedures. — After notice required by this section, the 
agency shall afford interested persons an opportunity to partici- 
pate in the rule making through submission of written data, views, 
or arguments with or without opportunity to present the same 
orally in any manner; and, after consideration of all relevant 
matter presented, the agency shall incorporate in any rules adopted 
a concise general statement of their basis and purpose. Where 
rules are required by statute to be made on the record after 
opportunity for an agency hearing, the requirements of sections 
7 and 8 shall apply in place of the provisions of this subsection. 

(c) Effective dates. — The required publication or service of 
any substantive rule (other than one granting or recognizing ex- 
emption or relieving restriction or interpretative rules and state- 
ments of policy) shall be made not less than thirty days prior to 
the effective date thereof except as otherwise provided by the 
agency upon good cause found and published with the rule. 

(d) Petitions. — Every agency shall accord any interested 
person the right to petition for the issuance, amendment, or 
repeal of a rule. 

Adjudication 

Sec. 5. In every case of adjudication required by statute to be 
determined on the record after opportunity for an agency hear- 
ing, except to the extent that there is involved (1) any matter 
subject to a subsequent trial of the law and the facts de novo in 
any court; (2) the selection or tenure of an officer or employee of 



Attorney General's Manual on the AP A 181 

115 

the United States other than examiners appointed pursuant to 
section 11; (3) proceedings in which decisions rest solely on in- 
spections, tests, or elections; (4) the conduct of military, naval, 
or foreign affairs functions ; (5) cases in which an agency is acting 
as an agent for a court; and (6) the certification of employee 
representatives — 

(a) Notice. — Persons entitled to notice of an agency hearing 
shall be timely informed of (1) the time, place, and nature thereof; 
(2) the legal authority and jurisdiction under which the hearing 
is to be held; and (3) the matters of fact and law asserted. In 
instances in which private persons are the moving parties, other 
parties to the proceeding shall give prompt notice of issues con- 
troverted in fact or law; and in other instances agencies may by 
rule require responsive pleading. In fixing the times and places 
for hearings, due regard shall be had for the convenience and 
necessity of the parties or their representatives. 

(b) Procedure. — The agency shall afford all interested parties 
opportunity for (1) the submission and consideration of facts, 
arguments, offers of settlement, or proposals of adjustment where 
time, the nature of the proceeding, and the public interest permit, 
and (2) to the extent that the parties are unable so to determine 
any controversy by consent, hearing, and decision upon notice 
and in conformity with sections 7 and 8. 

(c) Separation of functions. — The same officers who preside 
at the reception of evidence pursuant to section 7 shall make the 
recommended decision or initial decision required by section 8 
except where such officers become unavailable to the agency. Save 
to the extent required for the disposition of ex parte matters as 
authorized by law, no such officer shall consult any person or party 
on any fact in issue unless upon notice and opportunity for all 
parties to participate; nor shall such officer be responsible to or 
subject to the supervision or direction of any officer, employee, or 
agent engaged in the performance of investigative or prosecuting 
functions for any agency. No officer, employee, or agent engaged 
in the performance of investigative or prosecuting functions for 
any agency in any case shall, in that or a factually related case, 
participate or advise in the decision, recommended decision, or 
agency review pursuant to section 8 except as witness or counsel 
in public proceedings. This subsection shall not apply in determin- 
ing applications for initial licenses or to proceedings involving 
the validity or application of rates, facilities, or practices of public 
utilities or carriers; nor shall it be applicable in any manner to 



n 



I 



182 Administrative Procedure Act Appendix 

116 

the agency or any member or members of the body comprising 
the agency. 

(d) Declaratory orders.- -The agency is authorized in its 
sound discretion, with like effect as in the case of other orders, to 
issue a declaratory order to terminate a controversy or remove 
uncertainty. 

Ancillary Matters 

Sec. 6. Except as otherwise provided in this Act — 

(a) Appearance. — Any person compelled to appear in person 
before any agency or representative thereof shall be accorded the 
right to be accompanied, represented, and advised by counsel or, 
if permitted by the agency, by other qualified representative. 
Every party shall be accorded the right to appear in person or by 
or with counsel or other duly qualified representative in any agency 
proceeding. So far as the orderly conduct of public business per- 
mits, any interested person may appear before any agency or its 
responsible officers or employees for the presentation, adjustment, 
or determination of any issue, request, or controversy in any 
proceeding (interlocutory, summary, or otherwise) or in con- 
nection with any agency function. Every agency shall proceed with 
reasonable dispatch to conclude any matter presented to it except 
that due regard shall be had for the convenience and necessity of 
the parties or their representatives. Nothing herein shall be con- 
strued either to grant or to deny to any person who is not a lawyer 
the right to appear for or represent others before any agency or in 
any agency proceeding. 

(b) Investigations. — No process, requirement of a report, 
inspection, or other investigative act or demand shall be issued, 
made, or enforced in any manner or for any purpose except as 
authorized by law. Every person compelled to submit data or 
evidence shall be entitled to retain or, on payment of lawfully 
prescribed costs, procure a copy or transcript thereof, except 
that in a nonpublic investigatory proceeding the witness may for 
good cause be limited to inspection of the official transcript of his 
testimony. 

(c) SUBPENAS. — Agency subpenas authorized by law shall be 
issued to any party upon request and, as may be required by rules 
of procedure, upon a statement or showing of general relevance 
and reasonable scope of the evidence sought. Upon contest the 
court shall sustain any such subpena or similar process or demand 



ArroRNEY General's Manual on the APA 183 



B 



117 

to the extent that it is found to be in accordance with law and, in 
any proceeding for enforcement, shall issue an order requiring 
the appearance of the witness or the production of the evidence 
or data within a reasonable time under penalty of punishment for 
contempt in case of contumacious failure to comply. 

(d) Denials. — Prompt notice shall be given of the denial in 
whole or in part of any written application, petition, or other re- 
quest of any interested person made in connection with any 
agency proceeding. Except in affirming a prior denial or where 
the denial is self-explanatory, such notice shall be accompanied 
by a simple statement of procedural or other grounds. 

Hearings 

Sec. 7. In hearings which section 4 or 5 requires to be con- 
ducted pursuant to this section — 

(a) Presiding officers. — There shall preside at the taking of 
evidence (1) the agency, (2) one or more members of the body 
which comprises the agency, or (3) one or more examiners ap- 
pointed as provided in this Act; but nothing in this Act shall be 
deemed to supersede the conduct of specified classes of proceedings 
in whole or part by or before boards or other officers specially 
provided for by or designated pursuant to statute. The functions 
of all presiding officers and of officers participating in decisions 
in conformity with section 8 shall be conducted in an impartial 
manner. Any such officer may at any time withdraw if he deems 
himself disqualified ; and, upon the filing in good faith of a timely 
and sufficient affidavit of personal bias or disqualification of any 
such officer, the agency shall determine the matter as a part of 
the record and decision in the case. 

(b) Hearing powers.— Officers presiding at hearings shall 
have authority, subject to the published rules of the agency and 
within its powers, to (1) administer oaths and affirmations, (2) 
issue subpenas authorized by law, (3) rule upon offers of proof 
and receive relevant evidence, (4) take or cause depositions to be 
taken whenever the ends of justice would be served thereby, (5) 
regulate the course of the hearing, (6) hold conferences for the 
settlement or simplification of the issues by consent of the parties, 
(7) dispose of procedural requests or similar matters, (8) make 
decisions or recommend decisions in conformity with section 8, 
and (9) take any other action authorized by agency rule consistent 
with this Act. 



B 



1 84 Administrative Procedure Act Appendix 

118 

(c) Evidence. — Except as statutes otherwise provide, the pro- 
ponent of a rule or order shall have the burden of proof. Any oral 
or documentary evidence may be received, but every agency shall 
as a matter of policy provide for the exclusion of irrevelant im- 
material, or unduly repetitious evidence and no sanction shall be 
imposed or rule or order be issued except upon consideration of 
the whole record or such portions thereof as may be cited by any 
party and as supported by and in accordance with the reliable, 
probative, and substantial evidence. Every party shall have the 
right to present his case or defense by oral or documentary evi- 
dence, to submit rebuttal evidence, and to conduct such cross- 
examination as may be required for a full and true disclosure of 
the facts. In rule making or determining claims for money or 
benefits or applications for initial licenses any agency may, where 
the interest of any party will not be prejudiced thereby, adopt 
procedures for the submission of all or part of the evidence in 
written form. 

(d) Record. — The transcript of testimony and exhibits, to- 
gether with all papers and requests filed in the proceeding, shall 
constitute the exclusive record for decision in accordance with 
section 8 and, upon payment of lawfully prescribed costs, shall be 
made available to the parties. Where any agency decision rests on 
official notice of a material fact not appearing in the evidence in 
the record, any party shall on timely request be afforded an oppor- 
tunity to show the contrary. 

Decisions 

Sec. 8. In cases in which a hearing is required to be conducted 
in conformity with section 7 — 

(a) Action by subordinates. — In cases in which the agency 
has not presided at the reception of the evidence, the officer who 
presided (or, in cases not subect to subsection (c) of section 5, 
any other officer or officers qualified to preside at hearings pursuant 
to section 7) shall initially decide the case or the agency shall 
require (in specific cases or by general rule) the entire record to be 
certified to it for initial decision. Whenever such officers make the 
initial decision and in the absence of either an appeal to the agency 
or review upon motion of the agency within time provided by rule, 
such decision shall without further proceedings then become the 
decision of the agency. On appeal from or review of the initial 
decisions of such officers the agency shall, except as it may limit 



Attorney General's Manual ON THE APA 185 

119 

the issues upon notice or by rule, have all the powers which it 
would have in making the initial decision. Whenever the agency 
makes the initial decision without having presided at the reception 
of the evidence, such officers shall first recommend a decision 
except that in rule making or determining applications for initial 
licenses (1) in lieu thereof the agency may issue a tentative 
decision or any of its responsible officers may recommend a deci- 
sion or (2) any such procedure may be omitted in any case in 
which the agency finds upon the record that due and timely execu- 
tion of its functions imperatively and unavoidably so requires. 

(b) Submittals and decisions. — Prior to each recommended, 
initial, or tentative decision, or decision upon agency review of 
the decision of subordinate officers the parties shall be afforded a 
reasonable opportunity to submit for the consideration of the 
officers participating in such decisions (1) proposed findings and 
conclusions, or (2) exceptions to the decisions or recommended 
decisions of subordinate officers or to tentative agency decisions, 
and (3) supporting reasons for such exceptions or proposed find- 
ings or conclusions. The record shall show the ruling upon each 
such finding, conclusion, or exception presented. All decisions 
(including initial, recommended, or tentative decisions) shall 
become a part of the record and include a statement of (1) findings 
and conclusions, as well as the reasons or basis therefor, upon 
all the material issues of fact, law, or discretion presented on the 
record; and (2) the appropriate rule, order, sanction, relief, or 
denial thereof. 

Sanctions and Powers 

Sec. 9. In the exercise of any power or authority — 

(a) In general. — No sanction shall be imposed or substantive 
rule or order be issued except within jurisdiction delegated to the 
agency and as authorized by law. 

(b) Licenses. — In any case in which application is made for a 
license required by law the agency, with due regard to the rights 
or privileges of all the interested parties or adversely affected 
persons and with reasonable dispatch, shall set and complete any 
proceedings required to be conducted pursuant to sections 7 and 8 
of this Act or other proceedings required by law and shall make 
its decision. Except in cases of willfulness or those in which public 
health, interest, or safety requires otherwise, no withdrawal, 
suspension, revocation, or annulment of any license shall be lawful 





186 Administrative Procedure Act Appendix 



120 



unless, prior to the institution of agency proceedings therefor, 
facts or conduct which may warrant such action shall have been 
called to the attention of the licensee by the agency in writing and 
the licensee shall have been accorded opportunity to demonstrate 
or achieve compliance with all lawful requirements. In any case 
in which the licensee has, in accordance with agency rules, made 
timely and sufficient application for a renewal or a new license, 
no license with reference to any activity of a continuing nature 
shall expire until such application shall have been finally deter- 
mined by the agency. 

Judicial Review 

Sec. 10. Except so far as (1) statutes precude judicial review 
or (2) agency action is by law committed to agency discretion — 

(a) Right of review. — ^Any person suffering legal wrong be- 
cause of any agency action, or adversely affected or aggrieved 
by such action within the meaning of any relevant statute, shall 
be entitled to judicial review thereof. 

(b) Form and venue of action. — The form of proceeding 
for judicial review shall be any special statutory review pro- 
ceeding relevant to the subject matter in any court specified by 
statute or, in the absence or inadequacy thereof, any applicable 
form of legal action (including actions for declaratory judg- 
ments or writs of prohibitory or mandatory injunction or habeas 
corpus) in any court of competent jurisdiction. Agency action shall 
be subject to judicial review in civil or criminal proceedings for 
judicial enforcement except to the extent that prior, adequate, 
and exclusive opportunity for such review is provided by law. 

(c) Reviewable acts. — Every agency action made reviewable 
by statute and every final agency action for which there is no 
other adequate remedy in any court shall be subject to judicial 
review. Any preliminary, procedural, or intermediate agency 
action or ruling not directly reviewable shall be subject to review 
upon the review of the final agency action. Except as otherwise 
expressly required by statute, agency action otherwise final shall 
be final for the purposes of this subsection whether or not there 
has been presented or determined any application for a declaratory 
order, for any form of reconsideration, or (unless the agency 
otherwise requires by rule and provides that the action mean- 
while shall be inoperative) for an appeal to superior agency 
authority. 



Attorney General's Manual ON THE APA 187 

121 

(d) Interim relief. — Pending judicial review any agency 
is authorized, where it finds that justice so requires, to postpone 
the effectice date of any action taken by it. Upon such condi- 
tions as may be required and to the extent necessary to prevent 
irreparable injury, every reviewing court (including every 
court to which a case may be taken on appeal from or upon appli- 
cation for certiorari or other writ to a reviewing court) is 
authorized to issue all necessary and appropriate process to 
postpone the effective date of any agency action or to preserve 
status or rights pending conclusion of the review proceedings. 

(e) Scope of review. — So far as necessary to decision and 
where presented the reviewing court shall decide all relevant 
questions of law, interpret constitutional and statutory provisions, 
and determine the meaning or applicability of the terms of any 
agency action. It shall (A) compel agency action unlawfully 
withheld or unreasonably delayed; and (B) hold unlawful and 
set aside agency action, findings, and conclusions found to be (1) 
arbitrary, capricious, an abuse of discretion, or otherwise not in 
accordance with law; (2) contrary to constitutional right, power, 
privilege, or immunity; (3) in excess of statutory jurisdiction, 
authority, or limitations, or short of statutory right; (4) without 
observance of procedure required by law; (5) unsupported by 
substantial evidence in any case subject to the requirements of 
sections 7 and 8 or otherwise reviewed on the record of an agency 
hearing provided by statute; or (6) unwarranted by the facts 
to the extent that the facts are subject to trial de novo by the 
reviewing court. In making the foregoing determinations the 
court shall review the whole record or such portions thereof as 
may be cited by any party, and due account shall be taken of the 
rule of prejudicial error. 

Examiners 

Sec. 11. Subject to the civil-service and other laws to the ex- 
tent not inconsistent with this Act, there shall be appointed by 
and for each agency as many qualified and competent examiners 
as may be necessary for proceedings pursuant to sections 7 and 8, 
who shall be assigned to cases in rotation so far as practicable 
and shall perform no duties inconsistent with their duties and 
responsibilities as examiners. Examiners shall be removable by 
the agency in which they are employed only for good cause estab- 
lished and determined by the Civil Service Commission (here- 



D 



1 88 Administrative Procedure Act Appendix 



122 

inafter called the Commission) after opportunity for hearing and 
upon the record thereof. Examiners shall receive compensation 
prescribed by the Commission independently of agency recom- 
mendations or ratings and in accordance with the Classification 
Act of 1923, as amended, except that the provisions of paragraphs 
(2) and (3) of subsection (b) of section 7 of said Act, as amended, 
and the provisions of section 9 "bf said Act, as amended, 
shall not be applicable. Agencies occasionally or temporarily in- 
sufficiently staffed may utilize examiners selected by the Com- 
mission from and with the consent of other agencies. For the 
purposes of this section, the Commission is authorized to make 
investigations, require reports by agencies, issue reports, including 
an annual report to the Congress, promulgate rules, appoint such 
advisory committees as may be deemed necessary, recommend 
legislation, subpena witnesses or records, and pay witness fees 
as established for the United States courts. 

Construction and Effect 

Sec. 12. Nothing in this Act shall be held to diminish the con- 
stitutional rights of any person or to limit or repeal additional 
requirements imposed by statute or otherwise recognized by law. 
Except as otherwise required by law, all requirements or priv- 
ileges relating to evidence or procedure shall apply equally to 
agencies and persons. If any provision of this Act or the appli- 
cation thereof is held invalid, the remainder of this Act or other 
applications of such provision shall not be affected. Every agency is 
granted all authority necessary to comply with the requirements 
of this Act through the issuance of rules or otherwise. No subse- 
quent legislation shall be held to supersede or modify the provi- 
sions of this Act except to the extent that such legislation shall do 
so expressly. This Act shall take effect three months after its 
approval except that sections T and 8 shall take effect six months 
after such approval, the requirement of the selection of examiners 
pursuant to section 11 shall not become effective until one year 
after such approval, and no procedural requirement shall be 
mandatory as to any agency proceeding initiated prior to the 
effective date of such requirement. 

Approved June 11, 1946. 



Attorney General's Manual ON THE APA 189 

123 

APPENDIX B 

Office of the Attorney General, 
Washington, D, C, October 19, 1945. 

Hon. Pat McCarran, 

Chairman, Senate Judiciary Committee, 
United State Senate, Washington, D. C. 

My Dear Senator: You have asked me to comment on S. 7, 
a bill to improve the administration of justice by prescribing 
fair administrative procedure, in the form in which it appears in 
the revised committee print issued October 5, 1945. 

I appreciate the opportunity to comment on this proposed 
legislation. 

For more than a decade there has been pending in the Congress 
legislation in one form or another designed to deal horizontally 
with the subject of administrative procedure, so as to overcome 
the confusion which inevitably has resulted from leaving to 
basic agency statutes the prescription of the procedures to be 
followed or, in many instances, the delegation of authority to 
agencies to prescribe their own procedures. Previous attempts to 
enact general procedural legislation have been unsuccessful gen- 
erally because they failed to recognize the significant and inherent 
differences between the tasks of courts and those of administra- 
tive agencies or because, in their zeal for simplicity and uniform- 
ity, they propose too narrow and rigid a mold. 

Nevertheless, the goal toward which these efforts have been 
directed is, in my opinion, worth while. Despite difficulties of 
draftsmanship, I believe that over-all procedural legislation is 
possible and desirable. The administrative process is now well 
developed. It has been subject in recent years to the most inten- 
sive and informed study — ^by various congressional committees, 
by the Attorney General's Committee on Administrative Proced- 
ure, by organizations such as the American Bar Association, 
and by many individual practitioners and legal scholars. We have 
in general — as wc did not have until fairly recently — the materials 
and facts at hand. I think the time is ripe for some measure of 
control and prescription by legislation. I cannot agree that there 
is anything inherent in the subject of administrative procedure, 
however complex it may be, which defies workable codification. 




B 



190 Administrative Procedure Act Appendix 

124 

Since the original introduction of S. 7, I understand that 
opportunity has been afforded to public and private interests 
to study its provisions and to suggest amendments. The agencies 
of the Government primarily concerned have been consulted and 
their viev^s considered. In particular, I am happy to note that 
your committee and the House Committee on the Judiciary, in 
an effort to reconcile the views of the interested parties, have 
consulted officers of this Department and experts in administra- 
tive law made available by this Department. 

The revised committee print issued October 5, 1945, seems to 
me to achieve a considerable degree of reconciliation between the 
views expressed by the various Government agencies and the 
views of the proponents of the legislation. The bill in its present 
form requires administrative agencies to publish or make avail- 
able to the public an increased measure of information concerning 
their organization, functions, and procedures. It gives to that 
portion of the public which is to be affected by administrative 
regulations an opportunity to express its views before the regula- 
tions become effective. It prescribes, in instances in which existing 
statutes afford opportunity for hearing in connection with the 
formulation and issuance of administrative rules and orders, the 
procedures which shall govern such hearings. It provides for the 
selection of hearing officers on a basis designed to obtain highly 
qualified and impartial personnel and to insure their security of 
tenure. It also restates the law governing judicial review of ad- 
ministrative action. 

The bill appears to offer a hopeful prospect of achieving 
reasonable uniformity and fairness in administrative proced- 
ures without at the same time interfering unduly with the efficient 
and economical operation of the Government. Insofar as possible, 
the bill recognizes the needs of individual agencies by appropriate 
exemption of certain of their functions. 

After reviewing the committee print, therefore, I have con- 
cluded that this Department should recommend its enactment. 

My conclusion as to the workability of the proposed legislation 
rest on my belief that the provisions of the bill can and should be 
construed reasonably and in a sense which will fairly balance the 
requirements and interests of private persons and governmental 
agencies. I think it may be advisable for me to attach to this 
report an appendix discussing the principle provisions of the bill. 
This may serve to clarify some of the essential issues, and may 



Attorney General's Manual on the AP A 191 

125 

assist the committee in evaluating the impact of the bill on public 
and private interests. 

I am advised by the Acting Director of the Bureau of the 
Budget that while there would be no objection to the submission 
of this report, he questions the appropriateness of the inclusion 
of the words "independently of agency recommendations or rat- 
ings," appearing after the words "Examiners shall receive com- 
pensation prescribed by the [Civil Service] Commission" in 
section 11 of the bill, inasmuch as he deems it highly desirable 
that agency recommendations and ratings be fully considered by 
the Commission. 

With kind personal regards. 

Sincerely yours, 

Tom C. Clark, 
Attorney General 





192 Administrative Procedure Act Appendix 



126 

APPENDIX TO ATTORNEY GENERAL'S STATEMENT REGARDING REVISED 
COMMITTEE PRINT OF OCTOBER 5, 1945 

Section 2 : The definitions given in section 2 are of very broad 
character. It is believed, however, that this scope of definition 
will not be found to have any unexpected or unfortunate conse- 
quences in particular cases, inasmuch as the operative sections 
of the act are themselves carefully limited. 

"Courts" includes the Tax Court, Court of Customs and Patent 
Appeals, the Court of Claims, and similar courts. This act does 
not apply to their procedure nor affect the requirement of resort 
thereto. 

In section 2 (a) the words "agencies composed of representa- 
tives of the parties or of representatives of organizations of the 
parties to the disputes determined by them*' are intended to 
refer to the following, among others : National War Labor Board 
and the National Railroad Adjustment Board. 

In section 2 (c) the phrase "the approval or prescription for 
the future of rates, wages, corporate or financial structures 
or reorganizations thereof, prices, facilities, appliances," etc., is 
not, of course, intended to be an exhaustive enumeration of the 
types of subject matter of rule making. Specification of these 
particular subjects is deemed desirable, however, because there is 
no unanimity of recognition that they are, in fact, rule making. 
The phrase "for the future" is designed to differentiate, for exam- 
ple, between the process of prescribing rates for the future and 
the process of determining the lawfulness of rates charged in the 
past. The latter, of course, is "adjudication" and not "rule making." 
(Arizona Grocery Co. v. Atchison, Topeka, and Santa Fe Railway 
Co, (284 U.S. 370).) 

The definitions of "rule making" and "adjudication," set forth 
in subsections (c) and (d) of section 2, are especially significant. 
The basic scheme underlying this legislation is to classify all 
administrative proceedings into these two categories. The pattern 
is familiar to those who have examined the various proposals for 
administrative procedure legislation which have been introduced 
during the past few years ; it appears also in the recommendations 
of the Attorney General's Committee on Administrative Procedure. 
Proceedings are classed as rule making under this act not merely 
because, like the legislative process, they result in regulations of 



Attorney General's Manual on the APA 193 




127 

general applicability but also because they involve subject matter 
demanding judgments based on technical knowledge and experi- 
ence. As defined in subsection (c), for example, rule making 
includes not only the formulation of rules of general applicability, 
but also the formulation of agency action whether of general or 
particular applicability, relating to the types of subject matter 
enumerated in subsection (c). In many instances of adjudication, 
on the other hand, the accusatory element is strong, and individual 
compliance or behavior is challenged; in such cases, special pro- 
cedural safeguards should be provided to insure fair judgments 
on the facts as they may properly appear of record. The statute 
carefully differentiates between these two basically different 
classes of proceedings so as to avoid, on the one hand, too cumber- 
some a procedure and to require, on the other hand, an adequate 
procedure. 

Section 3: This section applies to all agencies covered by the 
act, including war agencies and war functions. The exception 
of any function of the United States requiring secrecy in the 
public interest is intended to cover (in addition to military, naval, 
and foreign affairs functions) the confidential operations of the 
Secret Service, the Federal Bureau of Investigation, United States 
attorneys, and other prosecuting agencies, as well as the confi- 
dential functions of any other agency. 

Section 3 (a), by requiring publication of certain classes of 
information in the Federal Register, is not intended to repeal the 
Federal Register Act (44 U. S. C. 301 et seq.) but simply to re- 
quire the publication of certain additional material. 

Section 3 (a) (4) is intended to include (in addition to sub- 
stantive rules) only such statements of general policy or interpret- 
ations as the agency believes may be formulated with a sufficient 
degree of definiteness and completeness to warrant their publica- 
tion for the guidance of the public. 

Section 3 (b) is designed to make available all final opinions 
or orders in the adjudication of cases. Even here material may be 
held confidential if the agency finds good cause. This confidential 
material, however, should not be cited as a precedent. If it is 
desired to rely upon the citation of confidential material, the agency 
should first make available some abstract of the confidential 
material in such form as will show the principles relied upon 
without revealing the confidential facts. 

Section 3 (c) is not intended to open up Government files for 



B 



194 Administrative Procedure Act Appendix 

128 

general inspection. What is intended is that the agencies, to the 
degree of specificity practicable, shall classify its material in 
terms of whether or not it is confidential in character and shall 
set forth in published rules the information or type of material 
which is confidential and that which is not. 

Section 4. The term "naval" in the first exception clause is 
intended to include the defense functions of the Coast Guard and 
the Bureau of Marine Inspection and Navigation. 

Section 4 (b), in requiring the publication of a concise general 
statement of the basis and purpose of rules made without formal 
hearing, is not intended to require an elaborate analysis of rules 
or of the detailed considerations upon which they are based, but is 
designed to enable the public to obtain a general idea of the 
purpose of, and a statement of the basic justification for, the rules. 
The requirement would also serve much the same function as the 
whereas clauses which are now customarily found in the preambles 
of Executive orders. 

Section 4 (c) : This subsection is not intended to hamper the 
agencies in cases in which there is good cause for putting a rule 
into effect immediately, or at some time earlier than 30 days. The 
section requires, however, that where an earlier effective date is 
desired the agency should make a finding of good cause therefor 
and publish its finding along with the rule. 

Section 4 (d) simply permits any interested person to petition 
an agency for the issuance, amendment, or repeal of a rule. It re- 
quires the reception and consideration of petitions, but does not 
compel an agency to undertake any rule-making procedure merely 
because a petition is filed. 

Sec. 5. Subject to the six exceptions set forth at the commence- 
ment of the section, section 5 applies to administrative adjudica- 
tions "required by statute to be determined on the record after 
opportunity for an agency hearing." It is thus limited to cases in 
which the Congress has specifically required a certain type of 
hearing. The section has no application to rule making, as defined 
in section 2 (c). The section does apply, however, to licensing 
with the exception that section 5 (c), relating to the separation 
of functions, does not apply in determining applications for initi- 
al licenses, i. e., original licenses as contradistinguished from 
renewals or amendments of existing licenses. 

If a case falls within one of the six exceptions listed at the 
opening of section 5, no provision of section 5 has any application 



Attorney General's Manual on the APA 195 



129 



B 



to that case ; such a case would be governed by the requirements 
of other existing statutes. 

The first exception is intended to exempt, among other mat- 
ters, certain types of reparation orders assessing daniag'./s, such 
as are issued by the Interstate Commerce Commission and tho 
Secretary of Agriculture, since such orders are aduiissiisle oi.ly 
as prima facie evidence in court upon attempt^^d enfoiconiLMit 
proceedings or (at least in the case of reparation ordt-rs issuoH 
by the Secretary of Agriculture under the Perishable Agricultural 
Commodities Act) on the appeal of the losing party. Roi)ariilion 
orders involving in pai*t an admistrativo dt^terminalic*;! t)f th*- 
reasonableness of rates in the past so far as they are not sul>j\^ct 
to trial de novo would be subject to the provisions of section 5 gen- 
erally but they have been specifically exempted from the segrega- 
tion provisions of section 5 (c). In the fourth exception the term 
"naval" is intended to include adjudicative defense functions of 
the Coast Guard and the Bureau of Marine Inspection and Nav- 
igation, where such functions pertain to national defense. 

Section 5 (a) is intended to state minimum requirements for 
the giving of notice to persons who under existing law are 
entitled to notice of an agency hearing in a statutory adjudication. 
While in most types of proceedings all of the information required 
to be given in clauses (1), (2), and (3) may be included in the 
"notice of hearing" or other moving paper, in many instances 
the agency or other moving party may not be in position to set 
forth all of such information in the moving paper, or perhaps 
not even in advance of the hearing, especially the "matters of 
fact and law asserted." The first sentence of this subsection merely 
requires that the information specified should be given as soon as 
it can be set forth and, in any event, in a suflficiently timely man- 
ner as to afford those entitled to the information an adequate 
opportunity to meet it. The second sentence complements the 
first and requires agencies and other parties promptly to reply to 
moving papers of private persons or permits agencies to require 
responsive pleading in any proceedings. 

Section 5 (c) applies only to the class of adjudicatory pro- 
ceedings included within the scope of section 5, i. e., cases of 
adjudication required by statute to be determined after opportun- 
ity for an agency hearing, and then not falling within one of the 
six excepted situations listed at the opening of section 5. As ex- 
plained in the comments with respect to section 5 generally, this 



196 Administrative Procedure Act Appendix 



130 



subsection does not apply either in proceedings to determine ap- 
plications for initial licenses or in those to determine the reason- 
ableness of rates in the past. 

In the cases to which this subsection is applicable, if the 
informal procedures described in section 5 (b) (1) are not ap- 
propriate or have failed, a hearing is to be held as provided in 
sections 7 and 8. At such hearings the same officers who preside at 
the reception of evidence pursuant to section 7 shall make the 
recommended decision or initial decision "required by section 8'* 
except where such officers become unavailable to the agency. The 
reference to section 8 is significant. Section 8 (a) provides that, 
in cases in which the agency has not presided at the reception of 
the evidence, the officer who presided (or, in cases not subject to 
subsection (c) of section 5, an officer or officers qualified to pre- 
side at hearings pursuant to section 7) shall make the initial 
or recommended decision, as the case may be. It is plain, therefore, 
that in cases subject to section 5(c) only the officer who presided 
at the hearing (unless he is unavailable for reasons beyond the 
agency's control) is eligible to make the initial or recommended 
decision, as the case may be. 

This subsection further provides that in the adjudicatory hear- 
ings covered by it no presiding officer shall consult any person or 
party on any fact in issue unless upon notice and opportunity for 
all parties to participate (except to the extent required for the 
disposition of ex parte matters as authorized by law) . The term 
"fact in issue" is used in its technical, litigious sense. 

In most of the agencies which conduct adjudicative proceed- 
ings of the types subject to this subsection, the examiners are 
placed in organizational units apart from those to which the 
investigative or prosecuting personnel are assigned. Under this 
subsection such an arrangement will become operative in all such 
agencies. Further, in the adjudicatory cases covered by section 5 
(c), no officer, employee, or agent engaged in the performance of 
investigative or prosecuting functions for any agency in any case 
shall, in that or a factually related case, participate or advise in 
the decision, recommended decision or agency review pursuant to 
section 8 except as witness or counsel in public proceedings. How- 
ever, section 5 (c) does not apply to the agency itself or, in the 
case of a multiheaded agency, any member thereof. It would not 
preclude, for example, a member of the Interstate Commerce 
Commission personally conducting or supervising an investigation 



Attorney General's Man^ual on the APA 197 

131 

and subsequently participating in the determination of the 
agency action arising out of such investigation. 

Section 5 (c), applying as it does only to cases of adjudication 
(except determining applications for initial licenses or determining 
reasonableness of rates in the past) within the scope of section 5 
generally, has no application whatever to rule making, as defined in 
section 2 (c). As explained in the comment on section 2 (c), rule 
making includes a wide variety of subject matters, and within the 
scope of those matters it is not limited to the formulation of rules 
of general applicability but includes also the formulation of 
agency action whether of general or particular application, for 
example, the reorganization of a particular company. 

Section 5 (d) : Within the scope of section 5 (i. e., in cases of 
adjudication required by statute to be determined on the record 
after opportunity for an agency hearing, subject to certain ex- 
ceptions) the agency is authorized to issue a declaratory order to 
terminate a controversy or remove uncertainty. Where declara- 
tory orders are found inappropriate to the subject matter, no 
agency is required to issue them. 

Section 6: Subsection (a), in stating a right of appearance for 
the purpose of settling or informally determining the matter in 
controversy, would not obtain if the agency properly determines 
that the responsible conduct of public business does not permit. 
It may be necessary, for example, to set the matter down for 
public hearing without preliminary discussion because a statute 
or the subject matter or the special circumstances so require. 

It is not intended by this provision to require the agency to 
give notice to all interested persons, unless such notice is other- 
wise required by law. 

This subsection does not deal with, or in any way qualify, the 
present power of an agency to regulate practice at its bar. It 
expressly provides, moreover, that nothing in the act shall be 
construed either to grant or to deny the right of nonlawyers to 
appear before agencies in a representative capacity. Control over 
this matter remains in the respective agencies. 

Section 6 (b) : The first sentence states existing law. The 
second sentence is new. 

Section 6 (c) : The first sentence entitles a party to a subpena 
upon a statement or showing of general relevance and reasonable 
scope of the evidence sought. The second sentence is intended to 




B 



198 Administrative Procedure Act Appendix 

132 

state the existing law with respect to the judicial enforcement of 
subpenas. 

Section 6 (d) : The statement of grounds required herein will 
be very simple, as contrasted with the more elaborate findings 
which are customarily issued to support an order. 

Section 7 : This section applies in those cases of statutory hear- 
ing which are required by sections 4 and 5 to be conducted pur- 
suant to section 7. Subject to the numerous exceptions contained 
in sections 4 and 5, they are cases in which an order or rule is to be 
made upon the basis of the record in a statutory hearing. 

Section 7 (a) : The subsection is not intended to disturb pres- 
ently existing statutory provisions which explicity provide for 
certain types of hearing oflficers. Among such are (1) joint hear- 
ings before oflficers of the Federal agencies and persons desig- 
nated by one or more States, (2) where officers of more than one 
agency sit, (3) quota allotment cases under the Agricultural 
Adjustment Act of 1938, (4) Marine Casualty Investigation 
Boards, (5) registers of the General Land Office, (6) special 
boards set up to review the rights of disconnected servicemen 
(38 U. S. C. 693h) and the rights of veterans to special unemploy- 
ment compensation (38 U.S.C. 696h) , and (7) boards of employees 
authorized under the Interstate Commerce Act (49 U. S. C. 17 (2) ) . 

Subject to this qualification, section 7 (a) requires that there 
shall preside at the taking of evidence one or more examiners 
appointed as provided in this act, unless the agency itself or one 
or more of its members presides. This provision is one of the most 
important provisions in the act. In many agencies of the Govern- 
ment this provision may mean the appointment of a substantial 
number of hearing officers having no other duties. The resulting 
expense to the Government may be increased, particularly in 
agencies where hearings are now conducted by employees of a 
subordinate status or by employees having duties in addition to 
presiding at hearings. On the other hand, it is contemplated that 
the Civil service Commission, which is empowered under the 
provisions of section 11 to prescribe salaries for hearing offi.cers, 
will establish various salary grades in accordance with the nature 
and importance of the duties performed, and will assign those 
in the lower grades to duties now performed by employees in the 
lower brackets. It may also be possible for the agencies to re- 
organize their staffs so as to permit the appointment of full-time 



Attorney General's Manual on the APA 199 




133 

hearing officers by reducing the number of employees engaged 
on other duties. 

This subsection further provides for withdrawal or removal 
of examiners disqualified in a particular proceeding. Some of the 
agencies have voiced concern that this provision would permit un- 
due delay in the conduct of their proceedings because of unneces- 
sary hearings or other procedure to determine whether affidavits 
of bias are well founded. The provision does not require hearings 
in every instance but simply requires such procedure, formal or 
otherwise, as would be necessary to establish the merits of the 
allegations of bias. If it is manifest that the charge is groundless, 
there may be prompt disposition of the matter. On the other 
hand, if the affidavit appears to have substance, it should be 
inquired into. In any event, whatever procedure the agency deems 
appropriate must be made a part of the record in the proceeding 
in which the affidavit is filed. 

Section 7 (b) : The agency may delegate to a hearing officer 
any of the enumerated powers with which it is vested. The 
enumeration of the powers of hearing officers is not intended to be 
exclusive. 

Section 7 (c) : The first sentence states the customary rule that 
the proponent of a rule or order shall have the burden of proof. 
Statutory exceptions to the rule are preserved. Parties shall have 
the right to conduct such cross-examination as may be required 
for a full and true disclosure of the facts. This is not intended to 
disturb the existing practice of submitting technical written 
reports, summaries, and analyses of material gathered in field 
surveys, and other devices appropriately adapted to the particular 
issues involved in specialized proceedings. Whether the agency 
must in such cases produce the maker of the report depends, as it 
does under the present law, on what is reasonable in all the cir- 
cumstances. 

It may be noted that agencies are empowered, in this sub- 
section, to dispense with oral evidence only in the types of pro- 
ceedings enumerated ; that is, in instances in which normally it is 
not necessary to see and hear the witnesses in order properly to 
appraise the evidence. While there may be types of proceedings 
other than those enumerated in which the oral testimony of the 
witnesses is not essential, in such instances the parties generally 
consent to submission of the evidence in written form so that the 




200 Administrative Procedure Act Appendix 

134 

inability of the agency to compel submission of written evidence 
v^ould not be burdensome. 

The provision regarding "evidence in w^ritten form" does not 
limit the generality of the prevailing principle that "any evidence 
may be received" ; that is, that the rules of evidence as such are 
not applicable in administrative proceedings, and that all types 
of pertinent evidentiary material may be considered. It is assum- 
ed, of course, that agencies will, in the words of the Attorney 
General's Committee on Administrative Procedure, rely only on 
such evidence (whether written or oral) as is "relevant, reliable, 
and probative." This is meant as a guide, but the courts in review- 
ing an order are governed by the provisions of section 10 (e), 
which states the "substantial evidence" rule. 

Section 7 (d) : The transcript of testimony and exhibits, to- 
gether with all papers and requests filed in the proceeding, shall 
constitute the exclusive record for decision, in the cases covered 
by section 7. This follows from the proposition that sections 7 and 
8 deal only with cases where by statute the decision is to be based 
on the record of hearing. Further, section 7 is limited by the excep- 
tions contained in the opening sentences of sections 4 and 5 ; ac- 
cordingly, certain special classes of cases, such as those where 
decisions rest solely on inspections, tests, or elections, are not cov- 
ered. The second sentence of the subsection enables the agency to 
take official notice of material facts which do not appear in the re- 
cord, provided the taking of such notice is stated in the record or 
decision, but in such cases any party affected shall, on timely 
request, be afforded an opportunity to show the contrary. 

Section 8: This section applies to all hearings held under 
section 7. 

Section 8 (a) : Under this subsection either the agency or a sub- 
ordinate hearing officer may make the initial decision. As previous- 
ly observed with respect to subsection (c) of section 5, in cases to 
which that subsection is applicable the same officer who person- 
ally presided over the hearing shall make such decision if it is to 
be made by a subordinate hearing officer. The agency may provide 
that in all cases the agency itself is to make the initial decision, or 
after the hearing it may remove a particular case from a subor- 
dinate hearing officer and thereupon make the initial decision. 
The initial decision of the hearing officer, in the absence of appeal 
to or review by the agency, is (or becomes) the decision of the 
agency. Upon review the agency may restrict its decision to ques- 



Attorney General's Manual ON THE AP A 201 

185 

tions of law, or to the question of whether the findings are sup- 
ported by substantial evidence or the weight of evidence, as the 
nature of the case may be. On the other hand, it may make entirely 
new findings either upon the record or upon new evidence which 
it takes. It may remand the matter to the hearing officer for any 
appropriate further proceedings. 

The intention underlying the last sentence of this subsection 
is to require the adoption of a procedure which will give the 
parties an opportunity to make their contentions to the agency 
before the issuance of a final agency decision. This sentence 
states as a general requirement that, whenever the agency makes 
the initial decision without having, presided at the reception of the 
evidence, a recommended decision shall be filed by the officer 
who presided at the hearing (or, in cases not subject to section 5 
(c) , by any other oflficer qualified to preside at section 7 hearings) . 
However, this procedure need not be followed in rule making or 
in determining applications for initial licenses (1) if, in lieu 
of a recommended decision by such hearing officer, the agency 
issues a tentative decision; (2) if, in lieu of a recommended deci- 
sion by such hearing officer, a recommended decision is submitted 
by any of the agency's responsible officers; or (3) if, in any event, 
the agency makes a record finding that "due and timely execution 
of its function imperatively and unavoidably so requires." 

Subsection (c) of section 5, as explained in the comments on 
that subsection, does not apply to rule making. The broad scope 
of rule making is explained in the notes to subsection (c) of 
section 2. 

The second exception permits, in proceedings to make rules 
and to determine applications for initial licenses, the continuation 
of the widespread agency practice of serving upon the parties, 
as a substitute for either an examiner's report or a tentative 
agency report, a report prepared by the staff of specialists and 
technicians normally engaged in that portion of the agency's 
operations to which the proceeding in question relates. The third 
exception permits, in lieu of any sort of preliminary report, the 
agency to issue forthwith its final rule or its order granting or 
denying an initial license in the emergent instances indicated. 
The subsection, however, requires that an examiner issue either 
an initial or a recommended decision, as the case may be, in all 
cases subject to section 7 except rule making and determining 
applications for initial licenses. The act permits no deviation from 



B 



B 



202 Administrative Procedure Act Appendix 



136 



this requirement, unless, of course, the parties waive such 
procedure. 

Section 8 (b) : Prior to each recommended, initial, or tentative 
decision, parties shall have a timely opportunity to submit proposed 
findings and conclusions, and, prior to each decision upon agency re- 
view of either the decision of subordinate officers or of the agency's 
tentative decision, to submit exceptions to the initial, recommended, 
or tentative decision, as the case may be. Subject to the agency's 
rules, either the proposed findings or the exceptions may be oral 
in form where such mode of presentation is adequate. 

Section 9: Subsection (a) is intended to declare the existing 
law. Subsection (b) is intended to codify the best existing law 
and practice. The second sentence of subsection (b) is not intended 
to apply to temporary licenses which may be issued pending the 
determination of applications for licenses. 

Section 10 : This section, in general, declares the existing law 
concerning judicial review. It provides for judicial review except 
insofar as statutes preclude it, or insofar as agency action is by 
law committed to agency discretion. A statute may in terms 
preclude judicial review or be interpreted as manifesting a con- 
gressional intention to preclude judicial review. Examples of 
such interpretation are : Switchmen's Union of North America v. 
National Mediation Board (320 U. S. 297) ; American Federation 
of Labor v. National Labor Relations Board (308 U. S. 401) ; 
Butte, Anaconda & Pacific Railway Co. v. United States (290 U. 
S. 127). Many matters are committed partly or wholly to agency 
discretion. Thus, the courts have held that the refusal by the 
National Labor Relations Board to issue a complaint is an exer- 
cise of discretion unreviewable by the courts (Jacob sen v. National 
Labor Relations Board, 120 F. (2d) 96 (C. C. A. 3d) ; Marine 
Engineers' Beneficial Assn, v. National Labor Relations Board, 
decided April 8, 1943 (C. C. A. 2d), certiorari denied, 320 U. S. 
777) . In this act, for example, the failure to grant a petition filed 
under section 4 (d) would be similarly unreviewable. 

Section 10 (a) : Any person suffering legal wrong because 
of any agency action, or adversely affected or aggrieved by such 
action within the meaning of any relevant statute, shall be entitled 
to judicial review of such action. This reflects existing law. In 
Alabama Power Co. v. Ickes (302 U. S. 464) , the Supreme Court 
stated the rule concerning persons entitled to judicial review. 
Other cases having an important bearing on this subject are 



Attorney General's Manual on the APA 203 

137 

Massachusetts v. Mellon (262 U. S. 447), The Chicago Junction 
Case (264 U. S. 258), Sprunt & Son v. United States (281 U. S. 
249), and Perkins v. Lukens Steel Co. (310 U. S. 113). An im- 
portant decision interpreting the meaning of the terms "aggrieved" 
and "adversely affected" is Federal Communications Conunission 
V. Sanders Bros. Radio Station (309 U. S. 470). 

Section 10 (b) : This subsection requires that, where a specific 
statutory method is provided for reviewing a given type of case in 
the courts, that procedure shall be used. If there is no such pro- 
cedure, or if the procedure is inadequate (i. e., where under exist- 
ing law a court would regard the special statutory procedure as 
inadequate and would grant another form of relief), then any 
applicable procedure, such as prohibitory or mandatory injunction, 
declaratory judgment, or habeas corpus, is available. The final 
sentence of the subsection indicates that the question of the 
validity of an agency action may arise in a court proceeding to en- 
force the agency action. The statutes presently provide various 
procedures for judicial enforcement of agency action, and nothing 
in this act is intended to disturb those procedures. In such a pro- 
ceeding the defendant may contest the validity of the agency action 
unless a prior, adequate, and exclusive opportunity to contest or 
review validity has been provided by law. 

Section 10 (c) : This subsection states (subject to the pro- 
visions of section 10 (a) ) the acts which are reviewable under 
section 10. It is intended to state existing law. The last sentence 
makes it clear that the doctrine of exhaustion of administrative 
remedies with respect to finality of agency action is intended to 
be applicable only (1) where expressly required by statute (as, 
for example, is provided in 49 U. S. C. 17 (9) ) or (2) where the 
agency's rules require that decisions by subordinate officers must be 
appealed to superior agency authority before the decision may be 
regarded as final for purposes of judicial review. 

Section 10 (d) : The first sentence states existing law. The 
second sentence may be said to change existing law only to the 
extent that the language of the opinion in Scripps-Hoiuard Radio, 
Inc. V. Federal Communications Commission (316 U.S. 4, 14) , may 
be interpreted to deny to reviewing courts the power to permit 
an applicant for a renewal of a license to continue to operate as 
if the original license had not expired, pending conclusion of the 
judicial review proceedings. In any event, the court must find, 





204 Administrative Procedure Act Appendix 



138 

of course, that granting of interim relief is necessary to prevent 
irreparable injury. 

Section 10 (e) : This declares the existing law concerning the 
scope of judicial review. The power of the court to direct or 
compel agency action unlawfully withheld or unreasonably de- 
layed is not intended to confer any nonjudicial functions or to 
narrow the principle of continuous administrative control enunci- 
ated by the Supreme Court in Federal Communications Commis- 
sion V. Pottsville Broadcasting Co. (309 U. S. 134). Clause (5) is 
intented to embody the law as declared, for example, in Consoli- 
dated Edison Co. v. National Labor Relations Board (305 U. S. 
197). There the Chief Justice said: "Substantial evidence is more 
than a mere scintilla. It means such relevant evidence as a rea- 
sonable mind might accept as adequate to support a conclusion 
(p. 229) * * * assurance of a desirable flexibility in admin- 
istrative procedure does not go so far as to justify orders with- 
out a basis in evidence having rational probative force" (p. 230). 

The last sentence of this section makes it clear that not every 
failure to observe the requirements of this statute or of the law 
is ipso facto fatal to the validity of an order. The statute adopts 
the rule now well established as a matter of common law in all 
jurisdictions that error is not fatal unless prejudicial. 

Sec. 11 : This section provides for the appointment, compensa- 
tion, and tenure of examiners who will preside over hearings 
and render decisions pursuant to section 7 and 8. The section 
provides that appointments shall be made "subject to the civil 
service and other laws to the extent not inconsistent with this 
act**. Appointments are to be made by the respective employing 
agencies of personnel determined by the Civil Service Commission 
to be qualified and competent examiners. The examiners appointed 
are to serve only as examiners except that, in particular instances 
(especially where the volume of hearings under a given statute 
or in a given agency is not very great), examiners may be as- 
signed additional duties which are not inconsistent with or which 
do not interfere with their duties as examiners. To insure equality 
of participation among examiners in the hearing and decision 
of cases, the agencies are required to use them in rotation so far 
as may be practicable. 

Examiners are subject to removal only for good cause "estab- 
lished and determined" by the Commission. The Commission must 
afford the examiner a hearing, if requested, and must rest its 



Attorney General's Manual on the APA 205 



139 

decision solely upon the basis of the record of such hearing. It 
should be noted that the hearing and the decision are to be con- 
ducted and made pursuant to the provisions of section 7 and 8. 

Section 11 provides further that the Commission shall pre- 
scribe the compensation of examiners, in accordance with the 
compensation schedules provided in the Classification Act, except 
that the efficiency rating system set forth in that act shall not be 
applicable to examiners. 

Sec. 12 : The first sentence of section 12 is intended simply to 
indicate that the act will be interpreted as supplementing consti- 
tutional and legal requirements imposed by existing law. 

The section further provides that "no subsequent legislation 
shall be held to supersede or modify the provisions of this act 
except to the extent that such legislation shall do so expressly". It 
is recognized that no congressional legislation can bind subse- 
quent sessions of the Congress. The present act can be repealed 
in whole or in part at any time after its passage. However, the 
act is intended to express general standards of wide applicability, 
it is believed that the courts should as a rule of construction 
interpret the act as applicable on a broad basis, unless some 
subsequent act clearly provides to the contrary. 




Judicial 
Review of 
Agency 
Action 



Citations: 

5 U.S.C. §§701-706, originally enacted as Administrative 
Procedure Act §10; significantly amended by Pub. L. No. 94-574, 
90 Stat. 2721; 28 U.S.C. §§1331, 2112, 2341-51. 



Overview: 

APA Provisions. The principal statutory authority governing 
judicial review of agency action is 5 U.S.C. §§701-706, which 
codifies section 10 of the Administrative Procedure Act. (The 
APA's text may be found in the Appendix to Chapter 1.) Sections 
701-706 constitute a general restatement of the principles of 
judicial review embodied in many statutes and judicial decisions; 
however, they leave the mechanics regarding judicial review to be 
governed by other statutes or court rules. ^ 

Section 701 embodies the basic presumption that judicial review 
is available as long as no statute precludes such relief or the action 
is not one committed by law to agency discretion. (Abbott 
Laboratories v. Gardner, 387 U.S. 136, 140 (1967); Citizens To 
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971)). 
Preliminary or interlocutory actions are ordinarily reviewable only 
on review of the final agency action. (See, e.g.. Association of 
National Advertisers, Inc. v. FTC, 565 F.2d 237 (2d Cir. 1977)). 
In those situations where preliminary or interlocutory actions are 
inmiediately reviewable, any suit seeking such relief that might 
affect a court of appeals' jurisdiction over a final agency decision is 
subject to exclusive review in the court of appeals rather than 



^Atiomey General's Manual on the Administrative Procedure Act 93 (1947). 



D 



208 Judicial Review of Agency Action 



district court. (See Telecommunications Research & Action Center 
V. FCC, 750 F.2d 70 (D.C. Cir. 1984).) 

Section 702 is designed to govern the issue of who has standing 
to challenge agency action.^ It sets forth the general principle that 
a person suffering legal wrong or adversely affected or aggrieved 
by agency action is entitled to judicial review of that action. The 
phrase "legal wrong" merely connotes such wrong as statutes or 
court decisions identify as constituting grounds for judicial review. 
The determination of who is "adversely affected or aggrieved" 
reflects judicial evolution of the law of standing; the courts make 
their determination based on constitutional and statutory 
requirements.^ 

Section 703 deals with the form and venue of the judicial review 
proceeding. Briefly, there are three types of review proceedings: 

■ "Statutory review," a review proceeding 
specifically provided by statute for the agency 
action in question (e.g., a proceeding to review a 
rule of the Federal Trade Conmiission under 
15 U.S.C. §57a(e)); 

■ "Nonstatutory review," a review through a 
suit against the agency or its officers for 
declaratory or injunctive relief or habeas corpus in 
a court of competent jurisdiction; 

■ A civil or criminal enforcement proceeding 
instituted by the government or possibly by a 
private party that involves the validity of agency 
action. 

Where a statutory proceeding is provided, such review is 
frequently, though not always, in the courts of appeals. 
Nonstatutory review proceedings and enforcement proceedings are 
almost invariably brought in the U.S. district courts. Where there 
is an adequate statutory review provided, a party may not seek 
nonstatutory review. However, review is available in an 
enforcement proceeding except where a prior opportunity for 
judicial review was adequate and expressly or impliedly exclusive.^ 



^Davis, 4 Administrative Law Treatise 219-20 (1983). 

^Attorney General's Manual on the Administrative Procedure Act 96 (1947). 

^Id. at 99-100. 



Judicial Review of Agency Action 209 



Section 704 provides that "agency action made reviewable by 
statute and final agency action for which there is no other adequate 
remedy in a court are subject to judicial review." Agency action 
under the APA "includes the whole or a part of any agency rule, 
order, license, sanction, relief, or the equivalent or denial thereof, 
or failure to act." 5 U.S.C. §551(13). 

Section 705 authorizes a reviewing court to postpone the 
effectiveness of agency action or preserve the status or rights 
affected by an agency's order pending completion of judicial 
review proceedings. TTie standards for deciding requests for stays 
of agency action are set out in Virginia Petroleum Jobbers Ass'n v. 
FPC, 259 F.2d 921 (D.C. Cir. 1958), as elaborated by the court's 
decisions in Washington Metropolitan Area Transit Comm'n v. 
Holiday Tours, Inc., 559 F.2d 841 (D.C. Cir. 1977), Wisconsin 
Gas Co. V. FERC, 758 F.2d 669 (D.C. Cir. 1985), and Cuomo v. 
NRC, 772 F.2d 972 (D.C. Cir. 1985). 

Section 706 sets forth the scope of review of agency actions. 
The case law on the subject of scope of review is rich and varied 
and cannot easily be sunmied up. In general, the scope of review 
depends on the nature of the agency determination under challenge. 
Agency conclusions on questions of law are reviewed de novo. 
When a court reviews an agency's construction of the statute it 
administers the court is required to uphold Congress' intent where 
Congress has directly spoken to the precise statutory question at 
issue. If the statute is silent or ambiguous with respect to the 
specific issue, however, the agency's interpretation of the statute 
must be upheld if the agency's construction of the statute is 
permissible. (See Chevron U.S.A., Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837, reh'g denied 468 U.S. 1227 
(1984); INSv. Cardoza-Fonseca, 480 U.S. 421 (1987)). 

Agency exercises of judgment or discretion are reviewed under 
the "arbitrary, capricious, abuse of discretion" standard. Under 
this standard, an agency determination will by upheld if it is 
rational, based on consideration of the relevant factors, and within 
the scope of the authority delegated to the agency by statute. The 
agency must examine the relevant data and articulate a satisfactory 
explanation for its action, including a rational connection between 
the facts found and the choices made. A court is not to substitute 
its judgment for that of the agency. (See Motor Vehicle 
Manufacturers Ass'n v. State Farm Mutual Auto. Ins. Co., 463 
U.S. 29, 42-43 (1983)). 

Agency determinations of fact are reviewed under the 
"substantial evidence" test when the agency determination is 



B 



D 



210 Judicial Review of Agency Action 



reviewed on the record of an agency hearing required by statute. 
(See Consolo v. FMQ 383 U.S. 607, 618-21 (1966), citing 
Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951).) 
Otherwise, factual determinations are also subject to the arbitrary 
or capricious standard, except for the fairly unusual situation in 
which the facts are subject to trial de novo by the reviewing court. 
However, the courts themselves have difficulty in applying the fine 
distinction between the arbitrary or capricious and the substantial 
evidence tests. The tests converge where an agency's 
determination is based on a mix of factual and judgmental 
conclusions (see, e.g., Amoco Oil Co. v. EPA, 501 F.2d 722, 739- 
741 (D.C. Cir. 1974)) and may be identical where an agency's 
factual support is concerned. (See Ass'n of Data Processing 
Service Organizations, Inc. v. Board Governors of the Federal 
Reserve System, 745 F.2d 677 (D.C. Cir. 1984).) 

Section 706 contains a rule of harmless error. A court will not 
overturn an agency's decision even if the agency committed some 
error unless the error was genuinely harmful or prejudicial. (See 
Dolcin Corp. v. FTC, 219 F.2d 742 (D.C. Cir. 1954), cert, denied 
348 U.S. 981 (1955).) 

Illustrative Statutory Provision. The Administrative Orders 
Review Act (28 U.S.C. §§2341-2351) is a special statutory 
provision governing review of the actions of several different 
agencies. It provides for review in the courts of appeals for certain 
final orders of the Federal Conmiunications Conmiission, the 
Secretary of Agriculture (under the Packers and Stockyards Act 
and the Perishable Agricultural Commodities Act), the Federal 
Maritime Conmiission, the Maritime Administration, the Nuclear 
Regulatory Commission and the Interstate Commerce Commission, 
and it specifies the procedure for instituting such review 
proceedings. Venue of tihe proceedings is in the judicial circuit 
where the petitioner resides or has its principal office or in the 
Court of Appeals for the District of Columbia Circuit (28 U.S.C. 
§2343). 

The "orders" that may be reviewed under the Administrative 
Orders Review Act include not only final orders in adjudicative 
proceedings, but also orders promulgating agency rules of general 
applicability (see Gage v. U.S. Atomic Energy Commission, 479 
F.2d 1214, 1218-19 (D.C. Cir. 1973); United States v. Storer 
Broadcasting Co., 351 U.S. 192 (1956)). However, because under 
28 U.S.C. §2344, a review proceeding may be initiated by "any 
party aggrieved by the final order," some courts have held that one 
who did not participate in the administrative proceeding resulting 



Judicial Review of Agency Action 211 



in the order may not seek review under the Act (Gage v. U.S. 
Atomic Energy Commission, 479 F.2d at 1217-18). 

Section 2344 provides that review must be sought within 60 
days of the entry of the agency order about which a person 
complains. Failure to seek judicial review within 60 days renders 
a request for review untimely. (See B.J. McAdams, Inc. v. ICC, 
551 F.2d 1112 (8th Cir. 1977).) This requirement may create 
problems with respect to persons seeking relief from a rule some 
time after its issuance. Where a dispute over a rule arises after its 
issuance, some courts will deem the 60-day period to run from the 
agency's denial of the party's request for amendment or waiver of 
the rule, rather than from the issuance date (Cf. Baltimore Gas <Sc 
Electric Co. v. ICC, 672 F.2d 146, 149-50 (D.C. Cir. 1982); 
Investment Co. Institute v. Board of Governors of the Federal 
Reserve System, 551 F.2d 1270, 1280-82 (D.C. Cir. 1977); Gage 
V. U.S. Atomic Energy Commission, 479 F.2d at 1222). 

Sovereign Immunity. For many years proceedings for non- 
statutory review were subject to possible dismissal on the ground 
that the government had not consented to be sued. The case law on 
the availability of the sovereign inmiunity defense was in hopeless 
disarray, but a careftil pleader could usually bring his case within 
one of the recognized exceptions to the doctrine. In 1976 in 
response to recommendations from the Conference and the 
American Bar Association, Congress enacted Pub. L. No. 94-574, 
which amended 5 U.S.C. §702 to abolish the defense of sovereign 
immunity in any action in a court of the United States seeking 
relief other than money damages and based on a claim that an 
agency or officer acted or failed to act in an official capacity or 
under color of legal authority. It is important to emphasize that the 
purpose of Pub. L. No. 94-574 was to abolish the technical defense 
of sovereign immunity in proceedings for nonstatutory review 
(Food Town Stores, Inc. v. EEOC, 708 F.2d 920, 922 (4th Cir. 
1983), cert, denied 465 U.S. 1005 (1984)), and not to eliminate 
other more substantive limitations on judicial review such as the 
plaintiff's lack of standing or failure to exhaust administrative 
remedies, or that the action in question is not ripe for review. 
Pub. L. No. 94-574 also eliminated several other technical 
obstacles to suits for judicial review.^ 




^In addition to amending section 702 to abolish the defense of sovereign immunity, 
Pub. L. No. 94-574 amended section 703 to deal with the problem of misnomer of 
government defendants, amended 28 U.S.C. §133 1(a) to permit nonstatutory review cases 
to be brought in district courts on the basis of federal question jurisdiction without regard to 
the amount in controversy, and amended 28 U.S.C. §1391(e) to permit a plaintiff to use the 




212 JuDiQAL Review of Agency Action 



Jurisdiction. Where the relevant statute expressly provides for 
judicial review in a particular court or courts, the statute itself 
operates as a grant of subject matter jurisdiction to the courts 
specified. In 1977 the Supreme Court, resolving a longstanding 
conflict of views, held that the Administrative Procedure Act, 
section 702, was not itself a grant to the federal district courts of 
jurisdiction over review proceedings {Califano v. Sanders, 430 
U.S. 99 (1977)). Consequently, the jurisdictional basis for 
proceedings for review other than those expressly provided for by 
statute must be found elsewhere, such as chapter 85 of title 28, 
U.S.C., which describes the jurisdiction of United States district 
courts. Section 1331 of title 28, which grants the district courts 
original jurisdiction of all civil actions arising under the 
Constitution, laws, or treaties of the United States, provides an 
adequate jurisdictional basis for substantially any review 
proceeding challenging agency action. Prior to 1976 section 1331 
could be invoked only when the amount in controversy was at least 
$10,000. However, Pub. L. No. 94-574, the statute that abolished 
the sovereign immunity defense, also eliminated the jurisdictional 
amount in actions against the United States or its officers; in 1980 
the jurisdictional amount was deleted in all cases under section 
1331. 

In the Federal Courts Improvement Act of 1982, Congress 
authorized any federal court without jurisdiction over a civil action 
that is filed with it (including a petition for review of agency 
action) to transfer the action to a court where such cases could have 
been brought in the first instance, if it is in the interest of justice to 
do so. 28 U.S.C. §1631. See, generally. Air Line Pilots Ass'n, 
Int'l V. CAB, 750 F.2d 81, 84-85 (D.C. Cir. 1984). 

Forum Selection. 28 U.S.C. §2112 governs the procedures for 
filing the record on review by the agency in the courts of appeals 
and the resolution of conflicts where proceedings have been 
instituted in two or more courts of appeals with respect to the same 
agency order. Section 2112(a) provides that the agency shall file 
the record (or, if local court rules permit, a certified list of the 
materials comprising the record) in a designated court of appeals. 
If only a single petition for review is filed within 10 days after 
issuance of an agency's order, the agency shall file the record in 

section's provisions for broad venue and extraterritorial service of process against 
government defendants despite the presence in the action of a nonfederal defendant. These 
changes had all been recommended by the Administrative Conference. See S. Rep. No. 94- 
996 and H.R. Rep. No. 94-1656, 94th Cong. 2d Sess., 1976 U.S. Code Cong. & Ad. News 
6121. 



Judicial Review of Agency Action 213 



that court of appeals notwithstanding the subsequent institution of 
any other court proceedings for review of the same order. If two 
or more petitions for review of the same agency order are filed in 
different courts of appeals within 10 days after issuance of the 
agency's order, the agency shall notify the judicial panel on 
multidistrict litigation, which shall by means of random selection 
designate one court of appeals from among the courts in which 
petitions were filed to hear the case; the panel shall consolidate all 
petitions for review in that court and the agency shall thereafter file 
the record in the designated court. In all other circumstances, the 
agency shall file the record in the court of appeals in which 
proceedings with respect to the order were first instituted. The 
random selection provisions in section 2112(a)(3) were established 
by Pub. L. No. 100-236, 101 Stat. 1731 (1988), to implement the 
Conference's recommendation to eliminate so-called "races to the 
courthouse" (Administrative Conference Recommendation 80-5, 
Eliminating or Simplifying the "Race to the Courthouse " in Appeals 
from Agency Action, 1 CFR §305.80-5 (1988)).^ 

Section 2112(a)(5) requires all courts in which proceedings are 
instituted, other than the court in which the record is filed, to 
transfer those proceedings to the court in which the record is filed. 
The section nonetheless authorizes the court in which the record is 
filed to transfer all proceedings to any other court of appeals for 
the convenience of the parties and in the interest of justice. 



B 



Bibliography: 



I. Legislative History 

1 . See Chapter 1 on Administrative Procedure Act. 

2. House of Representatives Conmiittee on the Judiciary, 
Report to Accompany H,R. 1162, H.R. Rep. No. 100-72, 100th 
Cong., IstSess. (1987). 

3. Senate Comm. on the Judiciary, Report to Accompany 
S. 1134, S. Rep. No. 100-263, 100th Cong., 1st Sess. (1987). 



"See generally McGarity, Multi-Party Forum Shopping for Appellate Review of 
Administrative Action, Report to the Administrative Conference of the U.S., 129 U. Pa. L. 
Rev. 302 (1980); 1980 ACUS 437. 



B 



214 Judicial Review OF Agency Action 



Appendix: 



1. 5 U.S.C. §§701-706 (See Chapter 1 Appendix). 

2. 28 U.S.C. §§1331; 2112; 2341-51 (1988). 



Judicial Review Statutes 215 



Judicial Review of Agency Action 
Title 28, U.S. Code 

§1331. Federal question 

The district courts shall have original jurisdiction of all civil actions arising 
under the Constitution, laws, or treaties of the United States. 
(June 25, 1948, ch. 646, 62 Stat. 930; July 25, 1958, Pub. L. No. 85-554, §1, 72 
Stat. 415; Oct. 21, 1976, Pub. L. No. 94-574, §2, 90 Stat. 2721; Dec. 1, 1980, 
Pub. L. No. 96-486, §2(a), 94 Stat. 2369.) 

Historical and Revision Notes 

Based on title 28, U.S.C, 1940 ed., §41(1) (Mar. 3, 1911, ch. 231, §24, par. 
1, 36 Stat. 1091; May 14, 1934, ch. 283, §1, 48 Stat. 775; Aug. 21, 1937, ch. 
726, §1, 50 Stat. 738; Apr. 20, 1940, ch. 117, 54 Stat. 143). 

Jurisdiction of federal questions arising under other sections of this chapter is 
not dependent upon the amount in controversy. (See annotations under former 
section 41 of title 28, U.S.C. A., and 35 C.J.S., p. 833 et seq., §§30-43. See, 
also, reviser's note under section 1332 of this title.) 

Words "wherein the matter in controversy exceeds the sum or value of 
$3,000, exclusive of interest and costs," were added to conform to rulings of the 
Supreme Court. See construction of provision relating to jurisdictional amount 
requirement in cases involving a Federal question in United States v. Sayward, 
16 S.Ct. 371, 160 U.S. 493, 40 L.Ed. 508; Fishback v. Western Union Tel. Co., 
16 S.Ct. 506, 161 U.S. 96, 40 L.Ed. 630; and Halt v. Indiana Manufacturing 
Co., 1900, 20 S.Ct. 272, 176 U.S. 68, 44 L.Ed. 374. 

Words "all civil actions" were substituted for "all suits of a civil nature, at 
common law or in equity" to conform with Rule 2 of the Federal Rules of Civil 
Procedure. 

Words "or treaties" were substituted for "or treaties made, or which shall be 
made under their authority," for purposes of brevity. 

The remaining provisions of section 41(1) of title 28, U.S.C, 1940 ed., are 
incorporated in sections 1332, 1341, 1342, 1345, 1354, and 1359 of this title. 

Changes were made in arrangement and phraseology. 

Amendments 

1980 Pub. L. No. 96-486 struck out "; amount in controversy; costs" in 
section catchline, struck out minimum amount in controversy requirement of 
$10,000 for original jurisdiction in federal question cases which necessitated 
striking the exception to such required minimum amount that authorized original 
jurisdiction in actions brought against the United States, any agency thereof, or 
any officer or employee thereof in an official capacity, struck out provision 
authorizing the district court except where express provision therefore was made 
in a federal statute to deny costs to a plaintiff and in fact impose such costs upon 
such plaintiff where plaintiff was adjudged to be entitled to recover less than the 
required amount in controversy, computed without regard to set-off or 



I 



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216 Judicial Review Appendix 



counterclaim and exclusive of interests and costs, and struck out existing 
subsection designations. 

1976 Subsec. (a). Pub. L. No. 94-574 struck out $10,000 jurisdictional 
amount where action is brought against the United States, any agency thereof, or 
any officer or employee thereof in his official capacity. 

1958 Pub. L. No. 85-554 included costs in section catchline, designated 
existing provisions as subsec. (a), substituted "$10,000" for "$3,000", and added 
subsec. (b). 

Section Referred to in Other Sections 

This section is referred to in section 1441 of this title; title 15 section 2064; 
title 25 section 416a; title 42 section 405. 

§2112. Record on review and enforcement of agency orders 

(a) The rules prescribed under the authority of section 2072 of this title may 
provide for the time and manner of filing and the contents of the record in all 
proceedings instituted in the courts of appeals to enjoin, set aside, suspend, 
modify, or otherwise review or enforce orders of administrative agencies, boards, 
commissions, and officers. Such rules may authorize the agency, board, 
commission, or officer to file in the court a certified list of the materials 
comprising the record and retain and hold for the court all such materials and 
transmit the same or any part thereof to the court, when and as required by it, at 
any time prior to the final determination of the proceeding, and such filing of such 
certified list of the materials comprising the record and such subsequent 
transmittal of any such materials when and as required shall be deemed full 
compliance with any provision of law requiring the filing of the record in the 
court. The record in such proceedings shall be certified and filed in or held for 
and transmitted to the court of appeals by the agency, board, commission, or 
officer concerned within the time and in the manner prescribed by such rules. If 
proceedings are instituted in two or more courts of appeals with respect to the 
same order, the following shall apply: 

(1) If within ten days after issuance of the order the agency, board, 
commission, or officer concerned receives, from the persons instituting the 
proceedings, the petition for review with respect to proceedings in at least two 
courts of appeals, the agency, board, commission, or officer shall proceed in 
accordance with paragraph (3) of this subsection. If within ten days after the 
issuance of the order the agency, board, commission, or officer concerned 
receives, from the persons instituting the proceedings, the petition for review with 
respect to proceedings in only one court of appeals, the agency, board, 
commission, or officer shall file the record in that court notwithstanding the 
institution in any other court of appeals of proceedings for review of that order. In 
all other cases in which proceedings have been instituted in two or more courts of 
appeals with respect to the same order, the agency, board, commission, or officer 
concerned shall file the record in the court in which proceedings with respect to 
the order were first instituted. 

(2) For purposes of paragraph (1) of this subsection, a copy of the petition or 
other pleading which institutes proceedings in a court of appeals and which is 



Judicial Review Statutes 217 



stamped by the court with the date of filing shall constitute the petition for review. 
Each agency, board, commission, or officer, as the case may be, shall designate 
by rule the office and the officer who must receive petitions for review under 
paragraph (1). 

(3) If an agency, board, commission, or officer receives two or more petitions 
for review of an order in accordance with the first sentence of paragraph (1) of 
this subsection, the agency, board, commission, or officer shall, promptly after 
the expiration of the ten-day period specified in that sentence, so notify the 
judicial panel on multidistrict litigation authorized by section 1407 of this title, in 
such form as that panel shall prescribe. The judicial panel on multidistrict 
litigation shall, by means of random selection, designate one court of appeals, 
from among the courts of appeals in which petitions for review have been filed 
and received within the ten-day period specified in the first sentence of paragraph 
(1), in which the record is to be filed, and shall issue an order consolidating the 
petitions for review in that court of appeals. The judicial panel on multidistrict 
litigation shall, after providing notice to the public and an opportunity for the 
submission of comments, prescribe rules with respect to the consolidation of 
proceedings under this paragraph. The agency, board, commission, or officer 
concerned shall file the record in the court of appeals designated pursuant to this 
paragraph. 

(4) Any court of appeals in which proceedings with respect to an order of an 
agency, board, commission, or officer have been instituted may, to the extent 
authorized by law, stay the effective date of the order. Any such stay may 
thereafter be modified, revoked, or extended by a court of appeals designated 
pursuant to paragraph (3) with respect to that order or by any other court of 
appeals to which the proceedings are transferred. 

(5) All courts in which proceedings are instituted with respect to the same 
order, other than the court in which the record is filed pursuant to this subsection, 
shall transfer those proceedings to the court in which the record is so filed. For 
the convenience of the parties in the interest of justice, the court in which the 
record is filed may thereafter transfer all the proceedings with respect to that 
order to any other court of appeals. 

(b) The record to be filed in the court of appeals in such a proceeding shall 
consist of the order sought to be reviewed or enforced, the fmdings or report upon 
which it is based, and the pleadings, evidence, and proceedings before the 
agency, board, commission, or officer concerned, or such portions thereof (1) as 
the rules prescribed under the authority of section 2072 of this title may require to 
be included therein, or (2) as the agency, board, commission, or officer 
concerned, the petitioner for review or respondent in enforcement, as the case 
may be, and any intervener in the court proceeding by written stipulation filed 
with the agency, board, commission, or officer concerned or in the court in any 
such proceeding may consistently with the rules prescribed under the authority of 
section 2072 of this title designate to be included therein, or (3) as the court upon 
motion of a party or, after a prehearing conference, upon its own motion may by 
order in any such proceeding designate to be included therein. Such a stipulation 
or order may provide in an appropriate case that no record need be filed in the 
court of appeals. If, however, the correctness of a fmding of fact by the agency, 
board, commission, or officer is in question all of the evidence before the agency, 
board, commission, or officer shall be included in the record except such as the 



D 



B 



218 Judicial Review Appendix 



agency, board, commission, or officer concerned, the petitioner for review or 
respondent in enforcement, as the case may be, and any intervenor in the court 
proceeding by written stipulation filed with the agency, board, commission, or 
officer concerned or in the court agree to omit as whoUy immaterial to the 
questioned finding. If there is omitted from the record any portion of the 
proceedings before the agency, board, commission, or officer which the court 
subsequently determines to be proper for it to consider to enable it to review or 
enforce the order in question the court may direct that such additional portion of 
the proceedings be filed as a supplement to the record. The agency, board, 
commission, or officer concerned may, at its option and without regard to the 
foregoing provisions of this subsection, and if so requested by the petitioner for 
review or respondent in enforcement shall, file in the court the entire record of the 
proceedings before it without abbreviation. 

(c) The agency, board, commission, or officer concerned may transmit to the 
court of appeals the original papers comprising the whole or any part of the 
record or any supplemental record, otherwise true copies of such papers certified 
by an authorized officer or deputy of the agency, board, commission, or officer 
concerned shall be transmitted. Any original papers thus transmitted to the court 
of appeals shall be returned to the agency, board, commission, or officer 
concerned upon the final determination of the review or enforcement proceeding. 
Pending such final determination any such papers may be returned by the court 
temporarily to the custody of the agency, board, commission, or officer concerned 
if needed for the transaction of the public business. Certified copies of any papers 
included in the record or any supplemental record may also be returned to the 
agency, board, commission, or officer concerned upon the fmal determination of 
review or enforcement proceedings. 

(d) The provisions of this section are not applicable to proceedings to review 
decisions of the Tax Court of the United States or to proceedings to review or 
enforce those orders of administrative agencies, boards, commissions, or officers 
which are by law reviewable or enforceable by the district courts. 

(Added Pub. L. No. 85-791, §2, Aug. 28, 1958, 72 Stat. 941, and amended Pub. 
L. No. 89-773, §5(a), (b), Nov. 6, 1966, 80 Stat. 1323; Pub. L. No. 100-236, §1, 
Jan. 8, 1988, 101 Stat. 1731.) 

Amendments 

1988 Subsec. (a). Pub. L. No. 100-236 substituted "If proceedings are 
instituted in two or more courts of appeals with respect to the same order, the 
following shall apply:" and pars. (1) to (5) for "If proceedings have been instituted 
in two or more courts of appeals with respect to the same order the agency, 
board, commission, or officer concerned shall file the record in that one of such 
courts in which a proceeding with respect to such order was first instituted. The 
other courts in which such proceedings are pending shall thereupon transfer them 
to the court of appeals in which the record has been filed. For the convenience of 
the parties in the interest of justice such court may thereafter transfer all the 
proceedings with respect to such order to any other court of appeals." 

1966 Subsec. (a). Pub. L. No. 89-773, §5(a), substituted "The rules 
prescribed under the authority of section 2072 of this title may provide for the 
time and manner of filing" for "The several courts of appeal shall have power to 



Judicial Review Statutes 219 



adopt, with the approval of the Judicial Conference of the United States, rules, 
which so far as practicable shall be uniform in all such courts prescribing the time 
and manner of filing." See section 2072 of this title. 

Subsec. (b). Pub. L. No. 89-773, §5(b), substituted "the rules prescribed 
under the authority of section 2072 of this title" for "the said rules of the court of 
appeals" and for "the rules of such court". 

§2341. Definitions 

As used in this chapter- 

(1) "clerk" means the clerk of the court in which the petition for the review of 
an order, reviewable under this chapter, is filed; 

(2) "petitioner" means the party or parties by whom a petition to review an 
order, reviewable under this chapter, is filed; and 

(3) "agency" means- 

(A) the Commission, when the order sought to be reviewed was 
entered by the Federal Communications Commission, the Federal Maritime 
Commission, the Interstate Commerce Commission, or the Atomic Energy 
Commission, as the case may be; 

(B) the Secretary, when the order was entered by the Secretary of 
Agriculture; 

(C) the Administration, when the order was entered by the Maritime 
Administration; and 

(D) the Secretary, when the order is under section 812 of the Fair 
Housing Act. 

(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 622, and amended 
Pub. L. No. 93-584, §3, Jan. 2, 1975, 88 Stat. 1917; Pub. L. No. 100-430, 
§ll(b),Sept. 13, 1988, 102 Stat. 1635.) 

§2342. Jurisdiction of court of appeals 

The court of appeals (other than the United States Court of Appeals for the 
Federal Circuit) has exclusive jurisdiction to enjoin, set aside, suspend (in whole 
or in part), or to determine the validity of- 

(1) all final orders of the Federal Communications Commission made 
reviewable by section 402(a) of title 47; 

(2) all final orders of the Secretary of Agriculture made under chapters 9 and 
20A of title 7, except orders issued under sections 210(e), 217a, and 499g(a) of 
title 7; 

(3) all rules, regulations, or final orders of~ 

(A) the Secretary of Transportation issued pursuant to section 2, 9, 37, 
41, or 43 of the Shipping Act, 1916 (46 U.S.C. App. 802, 803, 808, 835, 
839, and 841a); and 

(B) the Federal Maritime Commission issued pursuant to— 

(i) section 23, 25, or 43 of the Shipping Act, 1916 (46 U.S.C. 
App. 822, 824, or 841a); 

(ii) section 19 of the Merchant Marine Act, 1920 (46 U.S.C. 
App. 876); 



B 



B 



220 Judicial Review Appendix 



(iii) section 2, 3, 4, or 5 of the Intcrcoastal Shipping Act, 1933 
(46 U.S.C. App. 844, 845, 845a, or 845b); 

(iv) section 14 or 17 of the Shipping Act of 1984 (46 U.S.C. 
App. 1713 or 1716); or 

(v) section 2(d) or 3(d) of the Act of November 6, 1966 (46 
U.S.C. App. 817d(d) or 817e(d); 

(4) all final orders of the Atomic Energy Commission made reviewable by 
section 2239 of title 42; 

(5) all rules, regulations, or final orders of the Interstate Commerce 
Commission made reviewable by section 2321 of this title and all final orders of 
such Commission made reviewable under section 11901(j)(2) of title 49, United 
States Code; and 

(6) all final orders under section 812 of the Fair Housing Act. 
Jurisdiction is invoked by filing a petition as provided by section 2344 of this 

title. 

(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 622, and amended 
Pub. L. No. 93-584, §4, Jan. 2, 1975, 88 Stat. 1917; Pub. L. No. 95-454, title II, 
§206, Oct. 13, 1978, 92 Stat. 1144; Pub. L. No. 96-454, §8(b)(2), Oct. 15, 1980, 
94 Stat. 2021; Pub. L. No. 97-164, title I, §137, Apr. 2, 1982, 96 Stat. 41; Pub. 
L. No. 98-554, title II, §227(a)(4), Oct. 30, 1984, 98 Stat. 2852; Pub. L. No. 99- 
336, §5(a), June 19, 1986, 100 Stat. 638; Pub. L. No. 100-430, §ll(a), Sept. 13, 
1988, 102 Stat. 1635.) 

§2343. Venue 

The venue of a proceeding under this chapter is in the judicial circuit in which 
the petitioner resides or has its principal office, or in the United States Court of 
Appeals for the District of Columbia Circuit. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 622.) 

§2344. Review of orders; time; notice; contents of petition; service 

On the entry of a final order reviewable under this chapter, the agency shall 
promptly give notice thereof by service or publication in accordance with its rules. 
Any party aggrieved by the final order may, within 60 days after its entry, file a 
petition to review the order in the court of appeals wherein venue lies. The action 
shall be against the United States. The petition shall contain a concise statement 
of- 

(1) the nature of the proceedings as to which review is sought; 

(2) the facts on which venue is based; 

(3) the grounds on which relief sought; and 

(4) the relief prayed. 

The petitioner shall attach to the petition, as exhibits, copies of the order, report, 

or decision of the agency. The clerk shall serve a true copy of the petition on the 

agency and on the Attorney General by registered mail, with request for a return 

receipt. 

(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 622.) 



Judicial Review Statutes 221 



§2345. Prehearing conference 

The court of appeals may hold a prehearing conference or direct a judge of 
the court to hold a prehearing conference. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 622.) 

§2346. Certiflcation of record on review 

Unless the proceeding has been terminated on a motion to dismiss the petition, 
the agency shall file in the office of the clerk the record on review as provided by 
section 2112 of this title. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 623.) 

§2347. Petitions to review; proceedings 

(a) Unless determined on a motion to dismiss, petitions to review orders 
reviewable under this chapter are heard in the court of appeals on the record of 
the pleadings, evidence adduced and proceedings before the agency, when the 
agency has held a hearing whether or not required to do so by law. 

(b) When the agency has not held a hearing before taking the action of which 
review is sought by the petition, the court of appeals shall determine whether a 
hearing is required by law. After that determination, the court shall- 

(1) remand the proceedings to the agency to hold a hearing, when a hearing is 
required by law; 

(2) pass on the issues presented, when a hearing is not required by law and it 
appears from the pleadings and affidavits filed by the parties that no genuine issue 
of material fact is presented; or 

(3) transfer the proceedings to a district court for the district in which the 
petitioner resides or has its principal office for a hearing and determination as if 
the proceedings were originally initiated in the district court, when a hearing is 
not required by law and a genuine issue of material fact is presented. The 
procedure in these cases in the district court is governed by the Federal Rules of 
Civil Procedure. 

(c) If a party to a proceeding to review applies to the court of appeals in which 
the proceeding is pending for leave to adduce additional evidence and shows to 
the satisfaction of the court that- 

(1) the additional evidence is material; and 

(2) there were reasonable grounds for failure to adduce the evidence before 
the agency; 

the court may order the additional evidence and any counterevidence the 
opposite party desires to offer to be taken by the agency. The agency may modify 
its findings of fact, or make new findings, by reason of the additional evidence so 
taken, and may modify or set aside its order, and shall file in the court the 
additional evidence, the modified findings or new findings, and the modified order 
or the order setting aside the original order. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 623.) 



B 



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222 Judicial Review Appendix 



§2348. Representation in proceeding; intervention 

The Attorney General is responsible for and has control of the interests of the 
Government in all court proceedings under this chapter. The agency, and any 
party in interest in the proceeding before the agency whose interests will be 
affected if an order of the agency is or is not enjoined, set aside, or suspended, 
may appear as parties thereto of their own motion and as of right, and be 
represented by counsel in any proceeding to review the order. Communities, 
associations, corporations, firms, and individuals, whose interests are affected by 
the order of the agency, may intervene in any proceeding to review the order. The 
Attorney General may not dispose of or discontinue the proceeding to review over 
the objection of any party or intervenor, but any intervenor may prosecute, 
defend, or continue the proceeding unaffected by the action or inaction of the 
Attorney General. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 623.) 

§2349. Jurisdiction of the proceeding 

(a) The court of appeals has jurisdiction of the proceeding on the filing and 
service of a petition to review. The court of appeals in which the record on review 
is filed, on the filing, has jurisdiction to vacate stay orders or interlocutory 
injunctions previously granted by any court, and has exclusive jurisdiction to 
make and enter, on the petition, evidence, and proceedings set forth in the record 
on review, a judgment determining the validity of, and enjoining, setting aside, or 
suspending, in whole or in part, the order of the agency. 

(b) The filing of the petition to review does not of itself stay or suspend the 
operation of the order of the agency, but the court of appeals in its discretion may 
restrain or suspend, in whole or in part, the operation of the order pending the 
final hearing and determination of the petition. When the petitioner makes 
application for an interlocutory injunction restraining or suspending the 
enforcement, operation, or execution of, or setting aside, in whole or in part, any 
order reviewable under this chapter, at least 5 days' notice of the hearing thereon 
shall be given to the agency and to the Attorney General. In a case in which 
irreparable damage would otherwise result to the petitioner, the court of appeals 
may, on hearing, after reasonable notice to the agency and to the Attorney 
General, order a temporary stay or suspension, in whole or in part, of the 
operation of the order of the agency for not more than 60 days from the date of 
the order pending the hearing on the application for the interlocutory injunction, 
in which case the order of the court of appeals shall contain a specific finding, 
based on evidence submitted to the court of appeals, and identified by reference 
thereto, that irreparable damage would result to the petitioner and specifying the 
nature of the damage. The court of appeals, at the time of hearing the application 
for an interlocutory injunction, on a like finding, may continue the temporary stay 
or suspension, in whole or in part, until decision on the application. 

(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 624, and amended 
Pub. L. No. 98-620, title IV, §402(29)(F), Nov. 8, 1984, 98 Stat. 3359.) 



Judicial Review Statutes 223 



§2350. Review in Supreme Court on certiorari or certification 

(a) An order granting or denying an interlocutory injunction under section 
2349(b) of this title and a final judgment of the court of appeals in a proceeding to 
review under this chapter are subject to review by the Supreme Court on a writ of 
certiorari as provided by section 1254(1) of this title. Application for the writ shall 
be made within 45 days after entry of the order and within 90 days after entry of 
the judgment, as the case may be. The United States, the agency, or an aggrieved 
party may file a petition for a writ of certiorari. 

(b) The provisions of section 1254(2) of this title, regarding certification, and 
of section 2101(f) of this title, regarding stays, also apply to proceedings under 
this chapter. 

(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 624, and amended 
Pub. L. No. 100-352, §5(e), June 27, 1988, 102 Stat. 663.) 

§2351. Enforcement of orders by district courts 

The several district courts have jurisdiction specificaUy to enforce, and to 
enjoin and restrain any person from violating any order issued under section 193 
of title 7. 
(Added Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 624.) 

[§2352. Repealed. Pub. L. No. 89-773, §4, Nov. 6, 1966, 80 Stat. 
1323] 

Section, Pub. L. No. 89-554, §4(e), Sept. 6, 1966, 80 Stat. 624, directed the 
several courts of appeals to adopt and promulgate rules, subject to the approval of 
the Judicial Conference of the United States, governing the practice and 
procedure, including prehearing conference procedure, in proceedings to review 
orders under this chapter. See section 2072 of this title. 

Savings Provision 

Section 4 of Pub. L. No. 89-773 provided in part that the repeal of this section 
shall not operate to invalidate or repeal rules adopted under the authority of this 
section prior to the enactment of Pub. L. No. 89-773, which rules shall remain in 
effect until superseded by rules prescribed under authority of section 2072 of this 
title as amended by Pub. L. No. 89-773. 

[§2353. Repealed. Pub. L. No. 97-164, UUe I, §138, Apr. 2, 1982, 96 
Stat. 42] 

Section, added Pub. L. No. 91-577, title III, §143(c), Dec. 24, 1970, 84 Stat. 
1559, gave the court of appeals nonexclusive jurisdiction to hear appeals under 
section 71 of the Plant Variety Protection Act (7 U.S.C. 2461). See section 
1295(a)(8) of this title. 



B 



Administrative 
Dispute 
Resolution 
Act 



Citations: 

5 U.S.C. §§581-593^ (general provisions, confidentiality, 
administrative arbitration); 5 U.S.C. §556(c) (AU authority); 
9 U.S.C. §10 (arbitration, judicial review); 41 U.S.C. §§604-607 
(contract disputes); 29 U.S.C. §173 (FMCS authority); 28 U.S.C. 
§2672 (tort claims); and 31 U.S.C. §3711(a)(2) (government 
claims); enacted November 15, 1990 by Pub. L. No. 101-552, 
104 Stat. 2736. 



Lead Agency: 

Administrative Conference of the United States, 2120 L Street 
NW, Suite 500, Washington, DC 20037 (202) 254-7020. 



Overview: 

Background. The Administrative Dispute Resolution Act 
establishes a statutory framework for federal agency use of ADR in 
accordance with reforms advocated by the Conference in numerous 
recommendations. Alternative means of dispute resolution have 
been used increasingly by states, courts and private entities in the 
past decade or so. Their value lies in enabling parties to bring to 

^The Negotiated Rulemaking Act of 1990 (see Chapter 14), Pub. L. No. 101-648, also 
contains sections in title 5 of the U.S. Code numbered 581-590. H.R. 2549 (see Appendix) 
would remedy this situation. Congress had approved the amendments as of nud-August, 
1992; presidential signature was expected. The pre-amendment section numbers are used 
herein. 



B 



226 Administrative Dispute Resolution Act 

bear their experience, to foster creative, acceptable solutions, and 
to produce expeditious decisions requiring fewer resources than 
formal litigation. Mediation, arbitration, minitrials, factfinding, 
early neutral evaluation, settlement judges, and similar methods 
have begun to prove increasingly useftil in resolving administrative 
disputes. 

There is general recognition in the federal government and the 
private bar that litigation and formal hearing processes are too 
costly, time consuming, and destructive of a cooperative 
government-private sector relationship. Yet for the past 30 years, 
formality has been the trend in federal administrative law. This 
trend in more costly "process" has been concurrent with the growth 
in federal laws, budgets, regulations, judges, lawyers and all the 
other factors that tend to result in more (and more costly) disputes. 

Seeking to counter this trend for more than a dozen years, the 
Conference has repeatedly encouraged federal agency use of ADR 
processes, based on the experiences of the Environmental 
Protection Agency, the U.S. Army Corps of Engineers, and a few 
other federal agencies that have successfully used these methods. 
Even so, progress has been slow. 

It became evident to many practitioners and experts that 
legislation was needed to resolve legal questions and to prompt 
agencies. The Act was the response. It authorizes and encourages 
all federal agencies to use consensual processes, including 
arbitration, to enhance the possibility of reaching agreements 
expeditiously within the confines of agency authority. It is 
premised on Congress' findings that ADR can lead to more 
creative, efficient, stable, and sensible outcomes. 

Agency Implementation. Section 3 of the Administrative 
Dispute Resolution Act provides for agency action to put the 
provisions of this new legislation into effect. The Act provides for 
a responsible review process for agencies to follow. In this 
process, the agency will consider whether, and under what 
circumstances, ADR techniques may benefit the public and help it 
to fulfill statutory duties more effectively. 

An agency is required to consider-in consultation with the 
Conference-if ADR can be useful to each of its "administrative 
programs." Section 581 of this new subchapter defines an 
agency's "administrative program" broadly to include all activities 
involving "protection of the public interest and the determination of 
rights. ..." Agency review is directed to all manner of agency 
actions including actions involving entitlement programs, grants, 
contracts, insurance, loans, guarantees, licensing, inspections. 



Administrative Dispute Resolution Act 227 

taxes, fees, enforcement, postal services, economic regulation, 
management, claims, or private party complaints. Following 
review of its administrative programs, an agency will adopt 
policies on use of ADR. Section 582(b) lists factors an agency 
should use to determine if the dispute the agency has identified 
lends itself to ADR, especially binding arbitration. 

Section 3 assigns responsibility to implement the provisions of 
the Act. Each agency head is expected to designate a senior 
official to be the dispute resolution specialist of the agency. This 
official generally works at a departmental or comparable level to 
oversee the implementation of ADR activities and development of 
the agency policy on ADR. Ideally, the specialist or a designee 
would also seek to interact with counsel and program officers in 
helping these colleagues make full and effective use of the wide 
range of available dispute resolution options and in keeping them 
apprised of relevant developments in the public and private sectors. 
Each agency is expected to make training available to its specialist 
and other employees involved in implementing the Act. The 
agency specialist is expected to recommend to the agency head a 
list of other agency employees for similar training to be conducted 
by the specialist within the agency. The legislation designates the 
Conference to offer agencies policy and technical assistance and to 
report to Congress on agency progress. 

Section 3(d)(1) provides that each agency with significant grant 
or contract functions review its standard contract or assistance 
agreements to determine if a need exists for amendments to those 
agreements to authorize or encourage ADR use. Section 3(d)(2) 
provides that the Federal Acquisition Regulation be amended to 
reflect the amendments made by the Act. 

ADR Methods. Arbitration. Arbitration is closely akin to 
adjudication in that a neutral third party decides the submitted issue 
after reviewing evidence and hearing argument from the parties. It 
may be binding on the parties either through agreement or 
operation of law, or it may be nonbinding in that the decision is 
only advisory. Arbitration may be voluntary, where the parties 
agree to resolve the issues by means of arbitration, or it may be 
mandatory, where the process is the exclusive means provided. 
Under the Act, it must always be voluntary. 

Minitrial. A minitrial is a structured settlement process in 
which each side presents a highly abbreviated summary of its case 
before senior officials of each party authorized to settle the case. 
A neutral adviser sometimes presides over the proceeding and will 



B 



a 



228 Administrative Dispute Resolution Act 

render an advisory opinion if asked to do so. Following the 
presentations, the officials seek to negotiate a settlement. 

Mediation. Mediation involves a neutral third party trained to 
assist the parties in negotiating an agreement. The mediator has no 
independent authority and does not render a decision; any decision 
must be reached by the parties themselves. 

Facilitating. Facilitating helps parties reach a decision or a 
satisfactory resolution of the matter to be addressed. While often 
used interchangeably with "mediator," a facilitator generally 
conducts meetings and coordinates discussions, but does not 
become as involved in the substantive issues as does a mediator. 

Convening or Conflict Assessment. Convening helps identify 
issues in controversy and affected interests. The convenor is 
generally called upon to determine whether direct negotiations 
among the parties would be a suitable means of resolving the 
issues, and if so to bring the parties together for that purpose. 
Convening has proved valuable in negotiated rulemaking and 
environmental disputes. 

Negotiation. Negotiation is simply communication among 
people or parties in an effort to reach an agreement. It is used so 
routinely that it is frequently overlooked as a specific means of 
resolving disputes. In the administrative context, it means 
procedures and processes for settling matters that would otherwise 
be resolved by more formal means. 

Negotiated Rulemaking. This is a formal process initiated by an 
agency promulgating a regulation. If a convenor recommends 
negotiation, neutral-led discussions including interested parties can 
effect an acceptable solution. It is used when an agency issues or 
revises a rule, especially when controversy is expected. The result 
is a proposed rule. 

Summary Jury Trial. Disputants present evidence at a brief 
mock trial with a mock jury. After an advisory verdict, the 
presiding official may assist disputants negotiate. 

Neutral Evaluation/Factfinding. Unbiased input on technical 
aspects of a dispute is provided by a subject matter specialist. 
These methods are apt where parties are willing to share pertinent 
data, desire perspective on strengths and weaknesses, or want 
prompt resolution by real decisionmakers. Following the findings, 
the parties may then negotiate a settlement, hold ftirther 
proceedings, or conduct more research or discovery. 

Settlement Judge. This process involves mediation or 
discussions by disputants before a neutral, generally a judge other 



Administrative Dispute Resolution Act 229 

than the presiding one. It is generally voluntary. The settlement 
judge may give an informal advisory opinion. 

ADR Authority. The Act, section 582(a), authorizes agencies 
to use any ADR method to resolve any controversy relating to an 
administrative program. The term "alternative means of dispute 
resolution" is a key term used in the legislation and is defined in 
section 581(3) as follows: 

"Alternative means of dispute resolution" means 
any procedure that is used in lieu of an adjudication 
as defined in section 551(7) of this title, to resolve 
issues in controversy, including settlement 
negotiations, conciliation, facilitation, mediation, 
factfinding, minitrials, and arbitration, or any 
combination thereof. 

Section 551(7) of title 5 further defines "adjudication" to 
include "agency process for the formulation of an order;" and an 
"order" under section 551(6) is the "final disposition ... of an 
agency in a matter other than rule making. ..." Thus, "order" 
and "rule" encompass almost everything agencies do. 
Consequently, the term "alternative means of dispute resolution," 
when used in the body of the legislation, can broadly include any 
procedure an agency may use to resolve any issue in controversy in 
any federal program activity. "Issue in controversy" and 
"administrative program" (Sections 581(8) and (2))^ are similarly 
inclusive. 

The Act explicitly gives agencies broad discretion as to when 
and how to use ADR methods. Agency decisions on using or not 
using ADR are unreviewable (Section 591(b)(1)). The sole 
exception allows any nonparty adversely affected by an arbitral 
award to seek review of an agency decision to arbitrate under the 
Act. In such an action, the district court would decide whether the 
agency's decision to use arbitration was clearly inconsistent with 
section 582(b) 's criteria for appropriate use of ADR. 

Under 582(b), agencies should "consider not using" ADR when: 

(1) a definitive or authoritative resolution of the 
matter is required for precedential value, and such 



D 



^Cases relating to certain federal employee grievances are exempted from the Act. 
H.R. 2549 (see Appendix) would expand "issue in controversy," which was limited in the 
original to disputes in which the agency is a party. The employee grievance exemption 
would remain unchanged. 



B 



230 Administrative Dispute Resolution Act 

a proceeding is not likely to be accepted generally 
as an authoritative precedent; 

(2) the matter involves or may bear upon 
significant questions of Government policy that 
require additional procedures before a final 
resolution may be made, and such a proceeding 
would not likely serve to develop a recommended 
policy for the agency; 

(3) maintaining established policies is of special 
importance, so that variations among individual 
decisions are not increased and such a proceeding 
would not likely reach consistent results among 
individual decisions; 

(4) the matter significantly affects persons or 
organizations who are not parties to the 
proceeding; 

(5) a full public record of the proceeding is 
important, and a dispute resolution proceeding 
cannot provide such a record; and 

(6) the agency must maintain continuing 
jurisdiction over the matter with authority to alter 
the disposition of the matter in the light of changed 
circumstances, and a dispute resolution proceeding 
would interfere with the agency's fulfilling that 
requirement. 

This does not simply mean that the agency should not use ADR 
in a case involving public policy. A subtler balancing will be 
needed. For instance, in many such cases mediation, negotiated 
rulemaking, and similar methods will be very useful. On the other 
hand, agencies should not ordinarily use an arbitration to decide a 
major policy issue. This approach was intended to afford agencies 
maximum discretion, reinforced by the general nonreviewability of 
almost all decisions on use of ADR. Note that the provision does 
not state that the agency "shall not consider" and that the 
conjunctive "and" is employed in section 582(b). In exercising 
their very broad discretion, agencies should take into account all 
factors and qualifiers as to when, and what kind, of ADR methods 



Administrative Dispute Resolution Act 23 1 

to use. In no case need a formal finding or justification accompany 
an agency decision on employing ADR. 

Administrative Arbitration. One ADR process-binding 
arbitration— has evoked significant controversy in the public sector. 
After Congress passed the U.S. Arbitration Act in 1925, binding 
arbitration in private sector disputes became a widely accepted 
alternative to litigation. Shearson/American Express, Inc. v. 
McMahon, 482 U.S. 220 (1987), and several other recent Supreme 
Court decisions have been extremely encouraging to arbitration. 
Since early in this century, however, the Comptroller General took 
the view that unless a federal agency had explicit statutory 
authorization, it was prohibited from using a private arbitrator to 
decide the validity of virtually any claim involving the 
government. 3 This Act underscores the growing modern 
acceptance of arbitration by reversing this presumption. 

Section 4, amending 5 U.S.C. §§585-591, authorizes parties to 
administrative proceedings, including agencies, to agree to binding 
arbitration, but provides that the arbitral award does not become 
final and binding on an agency party for 30 days. During the 
interim, the agency head has unreviewable authority to vacate the 
arbitral award. In such cases the agency would assume all 
attorneys fees and expenses of the arbitration process unless an 
adjudicative officer or other designated official of the agency finds 
that the award of expenses is unjust. After 30 days, the award 
would become final and enforceable on the agency, as on other 
parties. The Act recognizes that certain kinds of government 
decisions will not be suitable for arbitration and in Section 582(b) 
helps agencies and reviewing courts by delineating factors to 
consider. 

The Act stipulates, in Section 589, that the arbitrator shall set a 
time and place for the hearing and that an arbitration proceeding 
shall be conducted expeditiously and in an informal manner. The 
parties may present evidence and cross-examine witnesses, but the 
arbitrator may exclude evidence that is irrelevant, immaterial, 
unduly repetitious, or privileged. The arbitrator may interpret and 
apply relevant statutory and regulatory requirements, legal 
precedents, and policy directives. The arbitrator shall make the 
award widiin 30 days of the hearing unless the parties agree to 
some other time limit or are bound by a rule providing otherwise. 



B 



"'See Berg, "Legal and Stnictural Obstacles to the Use of ADR in Federal Programs," 
in Administrative Conference of the U.S., Agency Arbitration (1987). 



B 



232 Administrative Dispute Resolution Act 

Arbitral awards generally have no precedential value, and are 
subject to review under the U.S. Arbitration Act. 

Confidentiality. Section 4, 5 U.S.C. §584, fosters agency use 
of ADR by ensuring appropriate protection of parties' and neutrals' 
communications. In doing so, the Act seeks a balance between the 
openness required for legitimacy and the confidentiality that is 
critical if many sensitive negotiations are to yield agreements. 

The legislation intends to provide a definite measure of 
confidentiality for neutrals and parties. In addition to Conference 
Recommendation 88-11, Encouraging Settlements by Protecting 
Mediator Confidentiality, three other sources are particularly 
important in determining the Act's approach to confidentiality. 
These are the Federal Rules of Evidence, the Federal Rules of 
Civil Procedure, and the Freedom of Information Act. Each of 
these offers limited and, at times, contradictory protection to 
parties and neutrals in settlement negotiations. The protections of 
section 584 are consistent with case law under those authorities, 
but are clearer and surer in their application. 

Section 584 generally prohibits disclosure of most settlement 
communications. Protected communications include the verbal 
exchange of information among the parties or in caucus between a 
party and the neutral facilitator. They also include a "settlement 
document," which is any written material that is provided in 
confidence to or generated by the neutral or generated by the 
parties for the purpose of a settlement proceeding, including 
memoranda, notes, and work product. Section 584 covers 
documents that are created specifically for the negotiations and that 
are ftirnished in confidence to the neutral by a participant in the 
negotiation. 

Section 584(a)(4) has a few narrow, clearly stated exceptions to 
confidentiality, most notably for information that could prevent 
harm to the public health and welfare, prevent a manifest injustice, 
or reveal a violation of law. Disclosure or testimony can in those 
situations be ordered when the court finds the magnitude in a 
particular case sufficient to outweigh the integrity of dispute 
resolution, in general. The mere issuance of a subpoena would not 
be sufficient. 

Section 584(j) provides that the Act is not a statute specifically 
exempting disclosure under section 552(b)(3) of the Freedom of 



Administrative Dispute Resolution Act 233 

Information Act."^ This last minute legislative change may give rise 
to some uncertainty. It clearly will not pose problems for 
contractors or other private persons who serve as neutrals; case law 
makes clear the immunity of such persons' papers under FOIA. 
Potential questions could arise, though, as to documents possessed 
by government employees who mediate cases involving their own 
or other agencies. If FOIA applies, then some might claim access 
to settlement documents retained by the government mediator. 
Because of this uncertainty, some government mediators report that 
they routinely trash all notes and other settlement documents at the 
close of discussions. There is some question as to whether such 
documents are government records, and some case law supports 
immunity from disclosure for government mediators. Of course, 
documents submitted in confidence with proprietary business 
information would be exempt. As to the rest, the Conference has 
recommended that agencies interpret FOIA to avoid disclosure of 
all settlement communications by neutrals serving in administrative 
dispute resolution proceedings. In sum, while the protections to 
confidentiality of government mediators should be quite firm, 
especially if agencies take precautions, no court has yet ruled on 
these kinds of questions. 

Neutrals who are requested to disclose protected documents 
must make an effort to notify the parties of demands for disclosure, 
and a party that does not offer to defend a neutral's refusal to 
disclose is considered to have waived any objection. The Act gives 
parties authority to vary the confidentiality provisions if all parties 
and the neutral agree to alternate provisions in advance. 

Neutrals. Section 4, adding 5 U.S.C. §583, provides that an 
arbitrator, mediator, convenor, facilitator, settlement judge, or 
other ADR neutral may be an employee of the federal government 
or any other person acceptable to both parties. Section 583 
authorizes the Conference to develop standards for neutrals and 
provides for the maintenance of a roster of neutrals. Services of a 
neutral may be obtained by such methods as interagency 



B 



Applicability of FOIA arose at the last minute and was not fully resolved. In a floor 
colloquy at the time of the Act's Senate passage, Senators Grassley and Levin expressed 
concern that the Act's current provisions do not adequately protect settlement 
communications. Senator Leahy, who chaired the Judiciary Subcommittee with jurisdiction 
over FOIA, pledged "to the sponsor of the bill. Senator Grassley, ... to work with him 
next year on this issue and try to determine whether certain dispute resolution 
communications should be exempt from FOIA." 136 Cong. Rec. S 18088 (daily ed. 
Oct. 24, 1990). 



a 



234 Administrative Dispute Resolution Act 

agreements, purchase orders, contracts, basic ordering agreements, 
and under some circumstances, via requirements contracts. 

Amendments to Existing Legislation. The Administrative 
Dispute Resolution Act was crafted to be "built into" existing 
agency processes. Specifically amended statutes include: 

■ Section 4, which amends the primary law 
governing federal agency administrative actions, 
the Administrative Procedure Act. The Act 
endeavors, through the APA amendments, to 
achieve its goals without disruption to any existing 
authority or dispute resolution system. Section 4 
authorizes agencies and parties to administrative 
proceedings to use neutrals, including mediators, 
facilitators, and arbitrators. The Act authorizes 
agencies to use the full range of alternative means 
of dispute resolution for their programs. The Act 
removes any doubt an agency official may have had 
about the authority to use ADR techniques, and 
expands arbitration authority. The only conditions 
are that the agreement to use an ADR technique be 
voluntary and-in the case of arbitration-not 
inappropriate under the standards set forth in 
section 582(b). 

■ Section 6, which amends 41 U.S.C. §§604- 
607, the Contract Disputes Act, to make it clear 
that government contracting officers and boards of 
contract appeals are encouraged to resolve claims 
by ADR and have the authority to do so. This 
includes the new authority to make use of 
arbitration in appropriate cases. Judicial review is 
available as in existing law. The amendments to 
the Contract Disputes Act are supplemental to 
existing arbitration authority in a few agencies. 

■ Section 7, which amends section 203 of the 
Labor Management Relations Act to authorize the 
Federal Mediation and Conciliation Service to 
make its mediators' and trainers' services available 
to other federal agencies. 

■ Section 8, which amends the Federal Tort 
Claims Act (28 U.S.C. §2672) to grant the 



Administrative Dispute Resolution Act 235 

Attorney General the authority to delegate 
additional tort claim compromise or settlement 
authority to agency heads without the necessity of 
prior Attorney General approval. Such delegations 
have been fixed at $25,000 for almost all agencies 
since 1966 (see Chapter 10). They now can be 
raised as high as, but cannot exceed, the dollar 
amount of delegated approval authority given to 
United States attorneys to settle claims against the 
United States (at present $500,000). 

■ Section 9, which also amends 31 U.S.C. 

§37 11 (a)(2) to raise agency claim compromise 
authority without prior Attorney General approval 
from $20,000 to $100,000 or even higher at the 
direction of the Attorney General. 



Legislative History: 

The Act reflects numerous Conference recommendations (see 
Bibliography). Recommendation 86-3, Agencies' Use of 
Alternative Means of Dispute Resolution, 1 CFR §305.86-3 (1992), 
urged Congress to authorize agencies to use ADR processes, 
including arbitration, to resolve matters that would otherwise be 
decided formally. The recommendation also set out other features 
that became part of the final legislation, including the criteria for 
appropriate use of ADR, judicial review, enforcement standards, 
and suggestions related to the general nature of congressional 
action designed to foster, rather then inhibit, the use of ADR. 
Other recommendations reflected in the legislation include 88-11, 
Encouraging Settlements by Protecting Mediator Confidentiality, 
1 CFR §305.88-11 (1992); 86-8, Acquiring the Services of 
"Neutrals " for Alternative Means of Dispute Resolution, 1 CFR 
§305.86-8 (1992); and 87-5, Arbitration in Federal Programs, 
1 CFR §305.87-5 (1992). 

On April 12, 1988, S. 2274, the Administrative Dispute 
Resolution Act of 1988, was introduced in the Senate by Senator 
Charles Grassley and referred to the Committee on Governmental 
Affairs. Introductory information is found at 134 Cong. Rec. S 
3803 (daily ed. April 12, 1988). Hearings were held on May 25, 
1988 before the Judiciary Subconmiittee on Courts and 



B 



B 



236 Administrative Dispute Resolution Act 

Administrative Practice. A virtually identical bill was introduced 
in the House of Representatives by Representative Donald Pease on 
July 27, 1988. The House bill, H.R. 5101, was referred to the 
Subcommittee on Administrative Law and Governmental Relations 
of the House Committee on the Judiciary. Introductory 
information is found at 134 Cong. Rec. H 5990 (daily ed. July 27, 
1988). Hearings were held before the Subconmiittee on June 16, 
1988. Neither bill was reported to the floor for House or Senate 
action. 

The bill that became the Administrative Dispute Resolution Act 
was again introduced by Senator Grassley on May 11, 1989 as S. 
971 and referred to the Senate Committee on Governmental 
Affairs. 135 Cong. Rec. S 5166 (daily ed. May 11, 1989). The 
bill was the subject of hearings by the Subconmiittee on Oversight 
of Government Management on September 19, 1989. The Senate 
Committee on Governmental Affairs reported the bill to the floor 
of the Senate for action on October 19, 1990. S. Rep. No. 1005, 
101st Cong., 2d Sess. (1990). The Senate passed the bill by voice 
vote on October 24, 1990. 136 Cong. Rec. S18082-18091 (daily 
ed. October 24, 1990). Several of the Act's provisions were 
discussed at that time, including the meaning of the confidentiality 
protections; their relation to FOIA disclosure provisions; operation 
of the administrative arbitration attorneys fee section; and 
exemption of certain federal personnel appeals from the Act. The 
Senate bill was reported to the House on October 24, 1990. 

On May 25, 1989, a comparable bill was introduced in the 
House by Congressmen Glickman and Pease as H.R. 2497. The 
bill was referred to the House Conunittee on the Judiciary. 135 
Cong. Rec. H 2206 (daily ed. May 25, 1989). Hearings were held 
by the Subcommittee on Administrative Law and Governmental 
Relations on January 31, 1990. On April 25, 1990, Subcommittee 
markup was completed and the bill, as amended, was forwarded to 
the full Committee. Administrative Dispute Resolution Act, 1990: 
Hearings on H.R. 2497 Before the Subcommittee on Administrative 
Law and Governmental Relations of the Committee on the 
Judiciary, 101st Cong., 2d Sess. (1990). The Judiciary Committee 
completed consideration and markup on May 22, 1990 and the 
amended bill was reported to the House floor on June 1, 1990. 
See H. R. Rep. No. 101-513, 101st Cong., 2d Sess. (1990). The 
bill passed by voice vote on June 5, 1990. 136 Cong. Rec. H 3152 
(daily ed. June 5, 1990). Following Senate passage of H.R. 2497 
in comparable form, the House passed the Senate version on 



Administrative Dispute Resolution Act 237 

October 26, 1990. The President signed the bill into law on 
November 15, 1990. 

Several changes were made to resolve differences in the House 
and Senate bills and to deal with concerns raised, including those 
mentioned. One major change made to both bills prior to passage 
involved arbitration awards. At the instigation of the respective 
House and Senate Committees, the Department of Justice, the 
Conference, and the American Bar Association developed 
amendments to permit arbitration in federal programs under the 
unique 30-day delayed finality provision that requires payment of 
attorneys fees in most cases for which an award is vacated by the 
agency head. 



Source Note: 

Literature on ADR is immense, and this Bibliography focuses 
on a small selection of items involving federal agencies. A much 
more extensive list of additional references on dispute resolution in 
the federal government is available from the Conference; its 
Sourcebook: Federal Agency Use of Alternative Means of Dispute 
Resolution (1987), is available fi-om GPO. The U.S. Army Corps 
of Engineers has developed a series of brochures on using 
minitrials and other ADR methods. It, FMCS, and the Conference 
have also prepared educational and training materials on ADR in 
federal agencies. 

Several useful sources regularly publish short news articles 
relevant to federal agencies. These include the BNA World 
Arbitration and Mediation Report, Dispute Resolution (published 
by the ABA), Alternatives to the High Cost of Litigation 
(published by the Center for Public Resources), Consensus 
(published by the Harvard Project on Negotiation), and the 
Administrative Conference News. 



Bibliography: 

I. Legislative History 

1. See Legislative History above. 



B 



B 



238 Administrative Dispute Resolution Act 

n. Administrative Conference Recommendations 

1. Administrative Conference of the U.S., Recommendation 
89-2, Contracting Officers' Management of Disputes, 1 CFR 
§305.89-2 (1992). 

2. Administrative Conference of the U.S., Recommendation 
88-11, Encouraging Settlements by Protecting Mediator 
Confidentiality, 1 CFR §305.88-11 (1992). 

3. Administrative Conference of the U.S., Recommendation 
88-5, Agency Use of Settlement Judges, 1 CFR §305.88-5 (1992). 

4. Administrative Conference of the U.S., Reconmiendation 
87-11, Alternatives for Resolving Government Contract Disputes, 
1 CFR §305.87-11 (1992). 

5. Administrative Conference of the U.S., Recommendation 
87-9, Dispute Procedures in Federal Debt Collection, 1 CFR 
§305.87-9 (1992). 

6. Administrative Conference of the U.S., Recommendation 
87-5, Arbitration in Federal Programs, 1 CFR §305.87-5 (1992). 

7. Administrative Conference of the U.S., Recommendation 
86-8, Acquiring the Services of "Neutrals" for Alternative Means of 
Dispute Resolution, 1 CFR §305.86-8 (1992). 

8. Administrative Conference of the U.S., Reconmiendation 
86-7, Case Management as a Tool for Improving Agency 
Adjudication, 1 CFR §305.86-7 (1992). 

9. Administrative Conference of the U.S., Recommendation 
86-3, Agencies' Use of Alternative Means of Dispute Resolution, 
1 CFR §305.86-3 (1992). 

10. Administrative Conference of the U.S., Recommendation 
86-1, Nonlawyer Assistance and Representation, 1 CFR §305.86-1 
(1992). 

11. Administrative Conference of the U.S., Reconmiendation 
84-7, Administrative Settlement of Tort and Other Monetary Claims 
Against the Government, 1 CFR §305.84-7 (1992). 

12. Administrative Conference of the U.S., Recommendation 
84-4, Negotiated Cleanup of Hazardous Waste Sites Under 
CERCLA, 1 CFR §305.84-4 (1992). 

13. Administrative Conference of the U.S., Recommendation 
90-2, The Ombudsman in Federal Agencies, 1 CFR §305.90-2 
(1992). 

14. Administrative Conference of the U.S., Recommendation 
82-2, Resolving Disputes Under Federal Grant Programs, 1 CFR 
§305.82-2 (1992). 



Administrative Dispute Resolution Act 239 

ni. Administrative Conference Publications 

1. Administrative Conference of the U.S., Sourcebook: Federal 
Agency Use of Alternative Means of Dispute Resolution 
(Marguerite Millhauser and Charles Pou, eds.) (Office of the 
Chairman, 1987). 

2. Administrative Conference of the U.S., Agency Arbitration 
(1988). 

3. Administrative Conference of the United States, 
Implementing the Administrative Dispute Resolution Act: Guidance 
for Agency Dispute Resolution Specialists (1992). 

4. Anderson, David and Diane Stockton, Ombudsmen in 
Federal Agencies: The Theory and the Practice, Report to the 
Administrative Conference of the U.S., 1990 ACUS 105, reprinted 
in 5 Admin. L.J. 275 (1991). 

5. Anderson, Frederick R., Negotiation and Informal Agency 
Action: The Case of Superfund, Report to the Administrative 
Conference of the U.S., 1984 ACUS 263, reprinted in 1985 Duke 
L.J. 261. 

6. Bednar, Richard J., Government Contracting Officers Should 
Make Greater Use of ADR Techniques in Resolving Contract 
Disputes, Report to the Administrative Conference of the U.S., 
1989 ACUS 149. 

7. Bermann, George A., Administrative Handling of Monetary 
Claims: Tort Claims at the Agency Level, Report to the 
Administrative Conference of the U.S., 1984 ACUS 639, portions 
reprinted in Federal Tort Claims at the Agency Level: The FTCA 
Administrative Process, 35 Case W. Res. L. Rev. 509 (1984-85). 

8. Bruff, Harold H., Public Decisions, Private Deciders: The 
Constitutionality of Arbitration in Federal Programs, Report to the 
Administrative Conference of the U.S., 1987 ACUS 533, reprinted 
in 67 Tex. L. Rev. 441 (1989). 

9. Cappalli, Richard B., Model for Case Management: The 
Grant Appeals Board, Report to the Administrative Conference of 
the U.S., 1986 ACUS 663. 

10. Crowell, Eldon H. and Charles Pou, Appealing Government 
Contract Decisions: Reducing the Cost and Delay of Procurement 
Litigation, Report to the Administrative Conference of the U.S., 
1987 ACUS 1139 (Vol. II), reprinted in 49 Md. L. Rev. 183 
(1989). 

11. Harter, Philip J., Neither Cop Nor Collection Agent: 
Encouraging Administrative Settlements by Ensuring Mediator 
Confidentiality, Report to the Administrative Conference of the 
U.S., 1988 ACUS 839, reprinted in 1 Admin. L.J. 315 (1989). 



B 



240 Administrative Dispute Resolution Act 

12. Harter, Philip J., Points on a Continuum: Dispute 
Resolution Procedures and the Administrative Process, Report to 
the Administrative Conference of the U.S., 1986 ACUS 165, 
reprinted in 1 Admin. L.J. 141 (1987). 

13. Hostetler, Zona Fairbanks, Nonlawyer Assistance to 
Individuals in Federal Mass Justice Agencies: The Need for 
Improved Guidelines, Report to the Administrative Conference of 
the U.S., 1986 ACUS 47, reprinted in 2 Admin. L.J. 85 (1988). 

14. Joseph, Daniel & Michelle L. Gilbert, Breaking the 
Settlement Ice: The Use of Settlement Judges in Administrative 
Proceedings, Report to the Administrative Conference of the U.S., 
1988 ACUS 281, reprinted in 3 Admin. L.J. 571 (1990). 

15. Ruttinger, George D., Acquiring the Services of Neutrals 
for Alternative Means of Dispute Resolution and Negotiated 
Rulemaking, Report to the Administrative Conference of the U.S., 
1986 ACUS 863. 

16. Smythe, Marianne K., The Reparations Program at the 
Commodity Futures Trading Commission: Reducing Formality in 
Agency Adjudication, Report to the Administrative Conference of 
the U.S., 1988 ACUS 873, reprinted in 2 Admin. L.J. 39 (1988). 

17. Steinberg, Ann, Federal Grant Dispute Resolution, Report 
to the Administrative Conference of the U.S., 1982 ACUS 137 
(Vol. 1), reprinted in Mezines, Stein, Gruff, Administrative Law 
(New York: Matthew Bender, 1983). 

IV. Compilations and Symposia 

1. Alternative Dispute Resolution, The Justice System Journal 
(Vol. 9/2) (Institute for Court Management, 1984). 

2. Alternative Dispute Resolution and Courts, Judicature (Vol. 
69, No. 5) (American Judicature Society, 1986). 

3. Alternative Dispute Resolution Symposium, 37 Fla. St. U.L. 
Rev. No. 1 (1985). 

4. Dispute Resolution: Articles; Dispute Resolution: Notes, 88 
Yale L.J. No. 5 (1979). 

5. Dispute Resolution Symposium, 21 Willamette L. Rev. No. 3 
(1985). 

6. Goldberg, Stephen B., Eric D. Green, and Frank E. A. 
Sander, Dispute Resolution (1985). 

7. Special Issue on Dispute Processing and Civil Litigation, 15 
Law & Society Rev. No. 3-4 (The Journal of the Law and Society 
Assoc, 1980-81). 



Administrative Dispute Resolution Act 241 

8. Symposium: Critical Issues in Alternative Dispute Resolution, 
12 Seton Hall L.J. No. 1 (1988). 

9. Symposium Issue on Alternative Dispute Resolution, 14 
Pepperdine L. Rev. No. 4 (1987). 

V. Other Articles 

1. A Colloquium On Improving Dispute Resolution: Options for 
the Federal Government, 1 Admin. L.J. No. 2 (1987) (proceedings 
of Administrative Conference colloquium). 

2. Chaykin, Arthur A., Mediator Liability: A New Role for 
Fiduciary Duties, 53 U. Cin. L. Rev. 731 (1984). 

3. Cramton, Roger C, A Federal Ombudsman, 1 Duke L.J. 1 
(1972). 

4. Federal Legislation on Dispute Resolution: Congressional 
Initiatives on Alternatives to Traditional Adversarial Processes 
(ABA Standing Committee on Dispute Resolution, Monograph 
Series-No. Ill A, 1988). 

5. Freedman, James O., Summary Action by Administrative 
Agencies, 40 U. Chi. L. Rev. 1 (1972). 

6. Riggs, Douglas and Elizabeth K. Dorminey, Federal 
Agencies' Use of Alternative Means of Dispute Resolution, 1 
Admin. L.J. 125 (1987). 



Appendix: 

1. Administrative Dispute Resolution Act, 5 U.S.C. §§556(c), 
581-593; 9 U.S.C. §10; 41 U.S.C. §§604-607; 29 U.S.C. §173; 
28 U.S.C. §2672; 31 U.S.C. §371 1(a)(2). 

2. Administrative Procedure Technical Amendments Act of 
1991, H.R.2549, 102nd Congress, 1st session. 

3. Administrative Conference of the U.S., Roster rules, 1 CFR 
§§316.100-316.302 (1991), 54 Fed. Reg. 39724 (September 28, 
1989). 



Administrative Dispute Resolution Act 243 

Administrative Dispute Resolution Act 

Sec. 2. Congressional Findings 

The Congress finds that— 

(1) administrative procedure, as embodied in chapter 5 of title 5, United 
States Code, and other statutes, is intended to offer a prompt, expert, and 
inexpensive means of resolving disputes as an alternative to litigation in the 
Federal courts; 

(2) administrative proceedings have become increasingly formal, costly, and 
lengthy resulting in unnecessary expenditures of time and in a decreased 
likelihood of achieving consensual resolution of disputes; 

(3) alternative means of dispute resolution have been used in the private 
sector for many years and, in appropriate circumstances, have yielded decisions 
that are faster, less expensive, and less contentious; 

(4) such alternative means can lead to more creative, efficient, and sensible 
outcomes; 

(5) such alternative means may be used advantageously in a wide variety of 
administrative programs; 

(6) explicit authorization of the use of well-tested dispute resolution 
techniques will eliminate ambiguity of agency authority under existing law; 

(7) Federal agencies may not only receive the benefit of techniques that were 
developed in the private sector, but may also take the lead in the further 
development and refinement of such techniques; and 

(8) the availability of a wide range of dispute resolution procedures, and an 
increased understanding of the most effective use of such procedures, will 
enhance the operation of the Government and better serve the public. 

Sec. 3. Promotion of Alternative Means of Dispute Resolution 

(a) Promulgation of Agency Policy. Each agency shall adopt a policy that 
addresses the use of alternative means of dispute resolution and case management. 
In developing such a policy, each agency shall— 

(1) consult with the Administrative Conference of the United States and the 
Federal Mediation and Conciliation Service; and 

(2) examine alternative means of resolving disputes in connection with- 

(A) formal and informal adjudications; 

(B) rulemakings; 

(C) enforcement actions; 

(D) issuing and revoking licenses or permits; 

(E) contract administration; 

(F) litigation brought by or against the agency; and 

(G) other agency actions. 

(b) Dispute Resolution Specialists. The head of each agency shall designate a 
senior official to be the dispute resolution specialist of the agency. Such official 
shall be responsible for the implementation of— 

(1) the provisions of this Act and the amendments made by this Act; and 

(2) the agency policy developed under subsection (a). 

(c) Training. Each agency shall provide for training on a regular basis for the 
dispute resolution specialist of the agency and other employees involved in 
implementing the policy of the agency developed under subsection (a). Such 



a 




244 Administrative Dispute Resolution Act Appendix 



training should encompass the theory and practice of negotiation, mediation, 
arbitration, or related techniques. The dispute resolution specialist shall 
periodically recommend to the agency head agency employees who would benefit 
from similar training. 

(d) Procedures for Grants and Contracts. 

(1) Each agency shall review each of its standard agreements for contracts, 
grants, and other assistance and shall determine whether to amend any such 
standard agreements to authorize and encourage the use of alternative means of 
dispute resolution. 

(2)(A) Within 1 year after the date of the enactment of this Act [Nov. 15, 
1990], the Federal Acquisition Regulation shall be amended, as necessary, to 
carry out this Act and the amendments made by this Act. 

(B) For purposes of this section, the term 'Federal Acquisition Regulation' 
means the single system of Government-wide procurement regulation referred to 
in section 6(a) of the Office of Federal Procurement Policy Act (41 U.S.C. 
405(a)). 

Sec. 4. Administrative Procedures. 

(a) Administrative Hearings.-Section 556(c) of title 5, United States Code, is 
amended— 

(1) in paragraph (6) by inserting before the semicolon at the end thereof 
the following: "or by the use of alternative means of dispute resolution as 
provided in subchapter IV of this chapter"; and 

(2) by redesignating paragraphs (7) through (9) as paragraphs (92) 
through (11), respectively, and inserting after paragraph (6) the following new 
paragraphs: 

"(7) inform the parties as to the availability of one or more alternative 
means of dispute resolution, and encourage use of such methods; 

"(8) require the attendance at any conference held pursuant to 
paragraph (6) of at least one representative of each party who has authority to 
negotiate concerning resolution of issues in controversy;". 

(b) Alternative Means of Dispute Resolution.-Chapter 5 of title 5, United States 
Code, is amended by adding at the end the following new subchapter: 



Administrative Dispute Resolution Act 245 

Subchapter IV Alternative Means of Dispute Resolution in 
the Administrative Process^ 

§581. Definitions. 

§582. General authority. 

§583. Neutrals. 

§584. Confidentiality. 

§585. Authorization of arbitration. 

§586. Enforcement of arbitration agreements. 

§587. Arbitrators. 

§588. Authority of the arbitrator. 

§589. Arbitration proceedings. 

§590. Arbitration awards. 

§591. Judicial review.^ 

§592. Compilation of information. 

§593. Support services. 

§581. Defmitions 

For the purposes of this subchapter, the term— 

(1) "agency" has the same meaning as in section 551(1) of this title; 

(2) "administrative program" includes a Federal function which involves 
protection of the public interest and the determination of rights, privileges, and 
obligations of private persons through rule making, adjudication, licensing, or 
investigation, as those terms are used in subchapter II of this chapter; 

(3) "alternative means of dispute resolution" means any procedure that is 
used, in lieu of an adjudication as defmed in section 551(7) of this title, to resolve 
issues in controversy, including but not limited to, settlement negotiations, 
conciliation, facilitation, mediation, factfinding, minitrials, and arbitration, or any 
combination thereof; 

(4) "award" means any decision by an arbitrator resolving the issues in 
controversy; 

(5) "dispute resolution communication" means any oral or written 
communication prepared for the purposes of a dispute resolution proceeding, 
including any memoranda, notes or work product of the neutral, parties or 
nonparty participant; except that a written agreement to enter into a dispute 
resolution proceeding, or final written agreement or arbitral award reached as a 
result of a dispute resolution proceeding, is not a dispute resolution 
communication; 

(6) "dispute resolution proceeding" means any process in which an alternative 
means of dispute resolution is used to resolve an issue in controversy in which a 
neutral is appointed and specified parties participate; 




•So in original. Two subchapters IV and two sections 581 to 590 have been 
enacted. 

^So in original. Does not conform to section catchline. 



B 



246 Administrative Dispute Resolution Act Appendix 



(7) "in confidence" means, with respect to information, that the information is 
provided— 

(A) with the expressed intent of the source that it not be disclosed; or 

(B) under circumstances that would create the reasonable expectation 
on behalf of the source that the information will not be disclosed; 

(8) "issue in controversy" means an issue which is material to a decision 
concerning an administrative program of an agency, and with which there is 
disagreement between the agency and persons who would be substantially affected 
by the decision but shall not extend to matters specified under the provisions of 
sections 2302 and 7121(c) of title 5;^ 

(9) "neutral" means an individual who, with respect to an issue in 
controversy, functions specifically to aid the parties in resolving the controversy; 

(10) "party" means— 

(A) for a proceeding with named parties, the same as in section 551(3) 
of this title; and 

(B) for a proceeding without named parties, a person who will be 
significantly affected by the decision in the proceeding and who participates in 
the proceeding; 

(11) "person" has the same meaning as in section 551(2) of this title; and 

(12) "roster" means a list of persons qualified to provide services as neutrals. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2738.) 

§582. General authority 

(a) An agency may use a dispute resolution proceeding for the resolution of an 
issue in controversy that relates to an administrative program, if the parties agree 
to such proceeding. 

(b) An agency shall consider not using a dispute resolution proceeding if— 

(1) a definitive or authoritative resolution of the matter is required for 
precedential value, and such a proceeding is not likely to be accepted generally as 
an authoritative precedent; 

(2) the matter involves or may bear upon significant questions of Government 
policy that require additional procedures before a fmal resolution may be made, 
and such a proceeding would not likely serve to develop a recommended policy 
for the agency; 

(3) maintaining established policies is of special importance, so that variations 
among individual decisions are not increased and such a proceeding would not 
likely reach consistent results among individual decisions; 

(4) the matter significantly affects persons or organizations who are not parties 
to the proceeding; 

(5) a full public record of the proceeding is important, and a dispute resolution 
proceeding cannot provide such a record; and 

(6) the agency must maintain continuing jurisdiction over the matter with 
authority to alter the disposition of the matter in the light of changed 
circumstances, and a dispute resolution proceeding would interfere with the 
agency's fulfilling that requirement. 



^So in original. Probably should be "of this title; 



Administrative Dispute Resolution Act 247 

(c) Alternative means of dispute resolution authorized under this subchapter 
are voluntary procedures which supplement rather than limit other available 
agency dispute resolution techniques. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2739.) 

§583. Neutrals 

(a) A neutral may be a permanent or temporary officer or employee of the 
Federal Government or any other individual who is acceptable to the parties to a 
dispute resolution proceeding. A neutral shall have no official, fmancial, or 
personal conflict of interest with respect to the issues in controversy, unless such 
interest is fiilly disclosed in writing to all parties and all parties agree that the 
neutral may serve. 

(b) A neutral who serves as a conciliator, facilitator, or mediator serves at the 
will of the parties. 

(c) In consultation with the Federal Mediation and Conciliation Service, other 
appropriate Federal agencies, and professional organizations experienced in 
matters concerning dispute resolution, the Administrative Conference of the 
United States shall- 

(1) establish standards for neutrals (including experience, training, affiliations, 
diligence, actual or potential conflicts of interest, and other qualifications) to 
which agencies may refer; 

(2) maintain a roster of individuals who meet such standards and are otherwise 
qualified to act as neutrals, which shall be made available upon request; 

(3) enter into contracts for the services of neutrals that may be used by 
agencies on an elective basis in dispute resolution proceedings; and 

(4) develop procedures that permit agencies to obtain the services of neutrals 
on an expedited basis. 

(d) An agency may use the services of one or more employees of other 
agencies to serve as neutrals in dispute resolution proceedings. The agencies may 
enter into an interagency agreement that provides for the reimbursement by the 
user agency or the parties of the full or partial cost of the services of such an 
employee. 

(e) Any agency may enter into a contract with any person on a roster 
established under subsection (c)(2) or a roster maintained by other public or 
private organizations, or individual for services as a neutral, or for training in 
connection with alternative means of dispute resolution. The parties in a dispute 
resolution proceeding shall agree on compensation for the neutral that is fair and 
reasonable to the Government. 

(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2739.) 

§584. Confidentiality 

(a) Except as provided in subsections (d) and (e), a neutral in a dispute 
resolution proceeding shall not voluntarily disclose or through discovery or 
compulsory process be required to disclose any information concerning any 
dispute resolution communication or any communication provided in confidence 
to the neutral, unless— 



D 



B 



248 Administrative Dispute Resolution Act Appendix 



(1) all parties to the dispute resolution proceeding and the neutral consent in 
writing, and, if the dispute resolution communication was provided by a nonparty 
participant, that participant also consents in writing; 

(2) the dispute resolution communication has already been made public; 

(3) the dispute resolution communication is required by statute to be made 
public, but a neutral should make such communication public only if no other 
person is reasonably available to disclose the communication; or 

(4) a court determines that such testimony or disclosure is necessary to- 

(A) prevent a manifest injustice; 

(B) help establish a violation of law; or 

(C) prevent harm to the public health or safety, 

of sufficient magnitude in the particular case to outweigh the integrity of dispute 
resolution proceedings in general by reducing the confidence of parties in future 
cases that their communications will remain confidential. 

(b) A party to a dispute resolution proceeding shall not voluntarily disclose or 
through discovery or compulsory process be required to disclose any information 
concerning any dispute resolution communication, unless— 

(1) the communication was prepared by the party seeking disclosure; 

(2) all parties to the dispute resolution proceeding consent in writing; 

(3) the dispute resolution communication has already been made public; 

(4) the dispute resolution communication is required by statute to be made 
public; 

(5) a court determines that such testimony or disclosure is necessary to- 

(A) prevent a manifest injustice; 

(B) help establish a violation of law; or 

(C) prevent harm to the public health and safety, 

of sufficient magnitude in the particular case to outweigh the integrity of dispute 
resolution proceedings in general by reducing the confidence of parties in future 
cases that their communications will remain confidential; 

(6) the dispute resolution communication is relevant to determining the 
existence or meaning of an agreement or award that resulted from the dispute 
resolution proceeding or to the enforcement of such an agreement or award; or 

(7) the dispute resolution communication was provided to or was available to 
all parties to the dispute resolution proceeding. 

(c) Any dispute resolution communication that is disclosed in violation of 
subsection (a) or (b), shall not be admissible in any proceeding relating to the 
issues in controversy with respect to which the communication was made. 

(d) The parties may agree to alternative confidential procedures for 
disclosures by a neutral. Upon such agreement the parties shall inform the neutral 
before the commencement of the dispute resolution proceeding of any 
modifications to the provisions of subsection (a) that will govern the 
confidentiality of the dispute resolution proceeding. If the parties do not so inform 
the neutral, subsection (a) shall apply. 

(e) If a demand for disclosure, by way of discovery request or other legal 
process, is made upon a neutral regarding a dispute resolution communication, the 
neutral shall make reasonable efforts to notify the parties and any affected 
nonparty participants of the demand. Any party or affected nonparty participant 
who receives such notice and within 15 calendar days does not offer to defend a 



Administrative Dispute Resolution Act 249 



refusal of the neutral to disclose the requested information shall have waived any 
objection to such disclosure. 

(0 Nothing in this section shall prevent the discovery or admissibility of any 
evidence that is otherwise discoverable, merely because the evidence was 
presented in the course of a dispute resolution proceeding. 

(g) Subsections (a) and (b) shall have no effect on the information and data 
that are necessary to document an agreement reached or order issued pursuant to 
a dispute resolution proceeding. 

(h) Subsections (a) and (b) shall not prevent the gathering of information for 
research or educational purposes, in cooperation with other agencies, 
governmental entities, or dispute resolution programs, so long as the parties and 
the specific issues in controversy are not identifiable. 

(i) Subsections (a) and (b) shall not prevent use of a dispute resolution 
communication to resolve a dispute between the neutral in a dispute resolution 
proceeding and a party to or participant in such proceeding, so long as such 
dispute resolution communication is disclosed only to the extent necessary to 
resolve such dispute. 

(j) This section shall not be considered a statute specifically exempting 
disclosure under section 552(b)(3) of this title. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2740.) 

§585. Authorization of arbitration 

(a)(1) Arbitration may be used as an alternative means of dispute resolution 
whenever all parties consent. Consent may be obtained either before or after an 
issue in controversy has arisen. A party may agree to-- 

(A) submit only certain issues in controversy to arbitration; or 

(B) arbitration on the condition that the award must be within a range 
of possible outcomes. 

(2) Any arbitration agreement that sets forth the subject matter submitted to 
the arbitrator shall be in writing. 

(3) An agency may not require any person to consent to arbitration as a 
condition of entering into a contract or obtaining a benefit. 

(b) An officer or employee of an agency may offer to use arbitration for the 
resolution of issues in controversy, if such officer or employee- 

(1) has authority to enter into a settlement concerning the matter; or 

(2) is otherwise specifically authorized by the agency to consent to the use of 
arbitration. 

(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2742.) 

§586. Enforcement of arbitration agreements 

An agreement to arbitrate a matter to which this subchapter applies is 
enforceable pursuant to section 4 of title 9, and no action brought to enforce such 
an agreement shall be dismissed nor shall relief therein be denied on the grounds 
that it is against the United States or that the United States is an indispensable 
party. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2742.) 



D 



B 



250 Administrative Dispute Resolution Act Appentdix 

§587. Arbitrators 

(a) The parties to an arbitration proceeding shall be entitled to participate in 
the selection of the arbitrator. 

(b) The arbitrator shall be a neutral who meets the criteria of section 583 of 
this title. 

(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2742.) 

§588. Authority of the arbitrator 

An arbitrator to whom a dispute is referred under this subchapter may~ 

(1) regulate the course of and conduct arbitral hearings; 

(2) administer oaths and affirmations; 

(3) compel the attendance of witnesses and production of evidence at the 
hearing under the provisions of section 7 of title 9 only to the extent the agency 
involved is otherwise authorized by law to do so; and 

(4) make awards. 

(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2742.) 

§589. Arbitration proceedings 

(a) The arbitrator shall set a time and place for the hearing on the dispute and 
shall notify the parties not less than 5 days before the hearing. 

(b) Any party wishing a record of the hearing shall— 

(1) be responsible for the preparation of such record; 

(2) notify the other parties and the arbitrator of the preparation of such record; 

(3) furnish copies to all identified parties and the arbitrator; and 

(4) pay all costs for such record, unless the parties agree otherwise or the 
arbitrator determines that the costs should be apportioned. 

(c)(1) The parties to the arbitration are entitled to be heard, to present 
evidence material to the controversy, and to cross-examine witnesses appearing at 
the hearing. 

(2) The arbitrator may, with the consent of the parties, conduct all or part of 
the hearing by telephone, television, computer, or other electronic means, if each 
party has an opportunity to participate. 

(3) The hearing shall be conducted expeditiously and in an informal manner. 

(4) The arbitrator may receive any oral or documentary evidence, except that 
irrelevant, immaterial, unduly repetitious, or privileged evidence may be excluded 
by the arbitrator. 

(5) The arbitrator shall interpret and apply relevant statutory and regulatory 
requirements, legal precedents, and policy directives. 

(d) No interested person shall make or knowingly cause to be made to the 
arbitrator an unauthorized ex parte communication relevant to the merits of the 
proceeding, unless the parties agree otherwise. If a communication is made in 
violation of this subsection, the arbitrator shall ensure that a memorandum of the 
communication is prepared and made a part of the record, and that an opportunity 
for rebuttal is allowed. Upon receipt of a communication made in violation of this 
subsection, the arbitrator may, to the extent consistent with the interests of justice 
and the policies underlying this subchapter, require the offending party to show 



Administrative Dispute Resolution Act 25 1 



cause why the claim of such party should not be resolved against such party as a 
result of the improper conduct. 

(e) The arbitrator shall make the award within 30 days after the close of the 
hearing, or the date of the filing of any briefs authorized by the arbitrator, 
whichever date is later, unless-- 

(1) the parties agree to some other time limit; or 

(2) the agency provides by rule for some other time limit. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2742.) 

§590. Arbitration awards 

(a)(1) Unless the agency provides otherwise by rule, the award in an 
arbitration proceeding under this subchapter shall include a brief, informal 
discussion of the factual and legal basis for the award, but formal findings of fact 
or conclusions of law shall not be required. 

(2) The prevailing parties shall file the award with all relevant agencies, along 
with proof of service on all parties. 

(b) The award in an arbitration proceeding shall become final 30 days after it 
is served on all parties. Any agency that is a party to the proceeding may extend 
this 30-day period for an additional 30-day period by serving a notice of such 
extension on all other parties before the end of the first 30-day period. 

(c) The head of any agency that is a party to an arbitration proceeding 
conducted under this subchapter is authorized to terminate the arbitration 
proceeding or vacate any award issued pursuant to the proceeding before the 
award becomes final by serving on all other parties a written notice to that effect, 
in which case the award shall be null and void. Notice shall be provided to all 
parties to the arbitration proceeding of any request by a party, nonparty 
participant or other person that the agency head terminate the arbitration 
proceeding or vacate the award. An employee or agent engaged in the 
performance of investigative or prosecuting functions for an agency may not, in 
that or a factually related case, advise in a decision under this subsection to 
terminate an arbitration proceeding or to vacate an arbitral award, except as 
witness or counsel in public proceedings. 

(d) A final award is binding on the parties to the arbitration proceeding, and 
may be enforced pursuant to sections 9 through 13 of title 9. No action brought to 
enforce such an award shall be dismissed nor shall relief therein be denied on the 
grounds that it is against the United States or that the United States is an 
indispensable party. 

(e) An award entered under this subchapter in an arbitration proceeding may 
not serve as an estoppel in any other proceeding for any issue that was resolved in 
the proceeding. Such an award also may not be used as precedent or otherwise be 
considered in any factually unrelated proceeding, whether conducted under this 
subchapter, by an agency, or in a court, or in any other arbitration proceeding. 

(f) An arbitral award that is vacated under subsection (c) shall not be 
admissible in any proceeding relating to the issues in controversy with respect to 
which the award was made. 

(g) If an agency head vacates an award under subsection (c), a party to the 
arbitration (other than the United States) may within 30 days of such action 
petition the agency head for an award of attorney fees and expenses (as defined in 



B 



252 Administrative Dispute Resolution Act Appendix 

section 504(b)(1)(A) of this title) incurred in connection with the arbitration 
proceeding. The agency head shall award the petitioning party those fees and 
expenses that would not have been incurred in the absence of such arbitration 
proceeding, unless the agency head or his or her designee fmds that special 
circumstances make such an award unjust. The procedures for reviewing 
applications for awards shall, where appropriate, be consistent with those set forth 
in subsection (a)(2) and (3) of section 504 of this title. Such fees and expenses 
shall be paid from the funds of the agency that vacated the award. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2743.) 

§591. Judicial Review 

(a) Notwithstanding any other provision of law, any person adversely affected 
or aggrieved by an award made in an arbitration proceeding conducted under this 
subchapter may bring an action for review of such award only pursuant to the 
provisions of sections 9 through 13 of title 9. 

(b)(1) A decision by an agency to use or not to use a dispute resolution 
proceeding under this subchapter shall be committed to the discretion of the 
agency and shall not be subject to judicial review, except that arbitration shall be 
subject to judicial review under section 10(b) of title 9. 

(2) A decision by the head of an agency under section 590 to terminate an 
arbitration proceeding or vacate an arbitral award shall be committed to the 
discretion of the agency and shall not be subject to judicial review. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2744.) 

§592. Compilation of information 

The Chairman of the Administrative Conference of the United States shall 
compile and maintain data on the use of alternative means of dispute resolution in 
conducting agency proceedings. Agencies shall, upon the request of the Chairman 
of the Administrative Conference of the United States, supply such information as 
is required to enable the Chairman to comply with this section. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2744.) 

§593. Support services 

For the purposes of this subchapter, an agency may use (with or without 
reimbursement) the services and facilities of other Federal agencies, public and 
private organizations and agencies, and individuals, with the consent of such 
agencies, organizations, and individuals. An agency may accept voluntary and 
uncompensated services for purposes of this subchapter without regard to the 
provisions of section 1342 of title 31. 
(Added Pub. L. 101-552, §4(b), Nov. 15, 1990, 104 Stat. 2745.) 

Sec. 5. Judicial Review of Arbitration Awards. 

Section 10 of title 9, United States Code, is amended- 
(1) by designating subsections (a) through (e) as paragraphs (1) through 
(5), respectively; 



Administrative Dispute Resolution Act 253 

(2) by striking out "In either" and inserting in lieu thereof "(a) in any"; 
and 

(3) by adding at the end thereof the following: 

"(b) The United States district court for the district wherein an award was 
made that was issued pursuant to section 590 of title 5 may make an order 
vacating the award upon the application of a person, other than a party to the 
arbitration, who is adversely affected or aggrieved by the award, if the use of 
arbitration or the award is clearly inconsistent with the factors set forth in section 
582 of title 5.". 

Sec. 6. Government Contract Claims. 

(a) Alternative Means of Dispute Resolution.-Section 6 of the Contract Disputes 
Act of 1978 (41 U.S.C. 606) is amended by adding at the end the following new 
subsections: 

"(d) Notwithstanding any other provision of this Act, a contractor and a 
contracting officer may use any alternative means of dispute resolution under 
subchapter IV of chapter 5 of title 5, United States Code, or other mutually 
agreeable procedures, for resolving claims. In a case in which such alternative 
means of dispute resolution or other mutually agreeable procedures are used, the 
contractor shall certify that the claim is made in good faith, that the supporting 
data are accurate and complete to the best of his or her knowledge and belief, and 
that the amount requested accurately reflects the contract adjustment for which the 
contractor believes the Government is liable. All provisions of subchapter FV of 
chapter 5 of title 5, United States Code, shall apply to such alternative means of 
dispute resolution. 

"(e) The authority of agencies to engage in alternative means of dispute 
resolution proceedings under subsection (d) shall cease to be effective on October 
1, 1995, except that such authority shall continue in effect with respect to then 
pending dispute resolution proceedings which, in the judgment of the agencies that 
are parties to such proceedings, require such continuation, until such proceedings 
terminate." 

(b) Judicial Review of Arbitral A wards. -Section 8(g) of the Contract Disputes 
Act of 1978 (41 U.S.C. 607(g)) is amended by adding at the end the following 
new paragraph: 

"(3) An award by an arbitrator under this Act shall be reviewed pursuant 
to sections 9 through 13 of title 9, United States Code, except that the court may 
set aside or limit any award that is found to violate limitations imposed by Federal 
statute." 

Sec. 7. Federal Mediation and Conciation Service. 

Section 203 of the Labor Management Relations Act, 1947 (29 U.S.C. 173) is 
amended by adding at the end the following new subsection: 

"(f) The Service may make its services available to Federal agencies to 
aid in the resolution of disputes under the provisions of subchapter FV of chapter 5 
of title 5, United States Code. Functions performed by the Service may include 
assisting parties to disputes related to administrative programs, training persons in 
skills and procedures employed in alternative means of dispute resolution, and 
furnishing officers and employees of the Service to act as neutrals. Only officers 
and employees who are qualified in accordance with section 583 of title 5, United 



D 



a 



254 Administrative Dispute Resolution Act Appendix 



States Code, may be assigned to act as neutrals. The Service shall consult with 
the Administrative Conference of the United States and other agencies in 
maintaining rosters of neutrals and arbitrators, and to adopt such procedures and 
rules as are necessary to carry out the services authorized in this subsection." 

Sec. 8. Government Tort and Other Claims. 

(a) Federal Tort Claims.-Section 2672 of title 28, United States Code, is 
amended by adding at the end of the first paragraph the following: 
"Notwithstanding the proviso contained in the preceding sentence, any award, 
compromise, or settlement may be effected without the prior written approval of 
the Attorney General or his or her designee, to the extent that the Attorney 
General delegates to the head of the agency the authority to make such award, 
compromise, or settlement. Such delegations may not exceed the authority 
delegated by the Attorney General to the United States attorneys to settle claims 
for money damages against the United States. Each Federal agency may use 
arbitration, or other alternative means of dispute resolution under the provisions 
of subchapter IV of chapter 5 of title 5, to settle any tort claim against the United 
States, to the extent of the agency's authority to award, compromise, or settle 
such claim without the prior written approval of the Attorney General or his or 
her designee.". 

(b) Claims of the Govemment.--Section 3711(a)(2) of title 31, United States 
Code, is amended by striking out "$20,000 (excluding interest)" and inserting in 
lieu thereof "$100,000 (excluding interest) or such higher amount as the Attorney 
General may from time to time prescribe.". 

Sec. 9. Use of Nonattorneys 

Section 9 of Pub. L. 101-552 provided that: 

"(a) Representation of Parties. Each agency, in developing a policy on the use 
of alternative means of dispute resolution under this Act, shall develop a policy 
with regard to the representation by persons other than attorneys of parties in 
alternative dispute resolution proceedings and shall identify any of its 
administrative programs with numerous claims or disputes before the agency and 
determine— 

"(1) the extent to which individuals are represented or assisted by attorneys 
or by persons who are not attorneys; and 

"(2) whether the subject areas of the applicable proceedings or the 
procedures are so complex or specialized that only attorneys may adequately 
provide such representation or assistance. 

"(b) Representation and Assistance by Nonattorneys. A person who is not an 
attorney may provide representation or assistance to any individual in a claim or 
dispute with an agency, if— 

"(1) such claim or dispute concerns an administrative program identified 
under subsection (a); 

"(2) such agency determines that the proceeding or procedure does not 
necessitate representation or assistance by an attorney under subsection (a)(2); and 
"(3)such person meets any requirement of the agency to provide 
representation or assistance in such a claim or dispute. 

"(c) Disqualification of Representation or Assistance. Any agency that adopts 
regulations under subchapter IV of chapter 5 of title 5, United States Code, to 



Administrative Dispute Resolution Act 255 



permit representation or assistance by persons who are not attorneys shall review 
the rules of practice before such agency to— 

"(1) ensure that any rules pertaining to disqualification of attorneys from 
practicing before the agency shall also apply, as appropriate, to other persons who 
provide representation or assistance; and 

"(2) establish effective agency procedures for enforcing such rules of practice 
and for receiving complaints from affected persons." 

Sec. 10. Definitions 

Section 10 of Pub. L. 101-552 provided that: "As used in this Act, the terms 
'agency', 'administrative program', and 'alternative means of dispute resolution' 
have the meanings given such terms in section 581 of title 5, United States Code, 
as added by section 4(b) of this Act." 

Sec. 11. Termination Date; Savings Provision 

Section 11 of Pub. L. 101-552 provided that: "The authority of agencies to 
use dispute resolution proceedings under this Act and the amendments made by 
this Act shall terminate on October 1, 1995, except that such authority shall 
continue in effect with respect to then pending proceedings which, in the judgment 
of the agencies that are parties to the dispute resolution proceedings, require such 
continuation, until such proceedings terminate." 



D 



Technical Amendments Act of 1 99 1 257 

Administrative Procedure Technical Amendments Act 

of 1991 

H.R.2549, 102nd Congress, 1st session 



B 



102ND CONGRESS; 1ST SESSION 

IN THE SENATE OF THE UNITED STATES 

AS REFERRED IN THE SENATE 

H. R. 2549 

1991 H.R. 2549 

SYNOPSIS: 
AN ACT 
To make technical corrections to chapter 5 of title 5, United States 
Code. 

DATE OF INTRODUCTION: NOVEMBER 26, 1991 

DATE OF VERSION: DECEMBER 2, 1991 — VERSION: 3 

SPONSOR (S) : 
Sponsor not included in this printed version. 

TEXT: 
* Be it enacted by the Senate and House of Representatives of the United* 
♦States of America in Congress assembled, * 

SECTION 1. SHORT TITLE. 

This Act may be cited as the "Administrative Procedure Technical 
Amendments Act of 1991". 
SEC. 2. REDESIGNATION OF SUBCHAPTER III. 

Subchapter III of chapter 5 of title 5, United States Code, is amended- 

(1) by redesignating such subchapter as subchapter V; 

(2) by redesignating sections 571 through 576 as sections 591 
through 596, respectively; and 

(3) in section 593(b)(4), as redesignated by paragraph (2), by 
striking "575" and inserting "595". 

SEC. 3. REDESIGNATION OF SUBCHAPTER IV. 

(a) NEGOTIATED RULEMAKING. -The subchapter IV entitled "NEGOTIATED 
RULEMAKING PROCEDURE" of chapter 5 of title 5, United States Code, is 
amended- 

(1) by redesignating such subchapter as subchapter III and 
inserting such subchapter immediately after subchapter II of such 
chapter 5 ; 

(2) by redesignating sections 581 through 590 as sections 561 
through 570, respectively; 

(3) in section 565(a)(1), as redesignated by paragraph (2) of this 
section, by striking "584" and inserting "564"; 

(4) in subsection (d) of secton 568, as redesignated by paragraph 

(2) of this section, by striking "589" and inserting "569"; and 

(5) in section 569, as redesignated by paragraph (2) of this 
section- 

(A) in subsection (d)(2) by striking "586" and inserting "566"; 

(B) in subsection (f)(2) by striking "588" and inserting "568"; 
and 

(C) in subsection (g) by striking "575" and inserting "595". 

(b) ALTERNATIVE DISPUTE RESOLUTION. -The subchapter IV entitled 



B 



258 Administrative Dispute Resolution Act Appendix 



1991 H.R. 2549 DECEMBER 2, 1991 — VERSION: 3 

,j-rNATIVE means of dispute resolution in the administrative PROCESS" 
-/lapter 5 of title 5, United States Code, is amended- 

(1) by inserting such subchapter immediately after subchapter III 
of such chapter (as redesignated by subsection (a)(1) of this 
section) ; 

(2) by redesignating sections 581 through 593 as sections 571 
through 583 respectively; 

(3) in subsection (b) of section 577, as redesignated by paragraph 
(2) of this section, by striking "583" and inserting "573"; and 

(4) in subsection (b)(2) of section 581, as redesignated by 
paragraph (2) of this section, by striking "590" and inserting "580". 

SEC. 4. CLERICAL AMENDMENTS. 

The table of sections at the beginning of chapter 5 of title 5, United 
States Code, is amended by striking "SUBCHAPTER III" and all that follows 
through the end of the table and inserting the following: 

"SUBCHAPTER III -NEGOTIATED RULEMAKING PROCEDURE 

"Sec. 561. Purpose. 

"Sec. 562. Definitions. 

"Sec. 563. Determination of need for negotiated rulemaking committee. 

"Sec. 564. Publication of notice; applications for membership on 
committees. 

"Sec. 565. Establishment of committee. 

"S&c. 566. Conduct of committee activity. 

"Sec. 567. Termination of committee. 

"Sec. 568. Services, facilities, and payment of committee member 
expenses. 

"Sec. 569. Role of the Administrative Conference of the United States 
and other entities. 

"SUBCHAPTER IV-ALTERNATIVE MEANS OF DISPUTE RESOLUTION IN THE 

ADMINISTRATIVE PROCESS 

"Sec. 571. Definitions. 

"Sec. 572. General authority. 

"Sec. 573. Neutrals. 

"Sec. 574. Confidentiality. 

"Sec. 575. Authorization of arbitration. 

"Sec. 576. Enforcement of arbitration agreements. 

"Sec. 577. Arbitrators. 

"Sec. 578. Authority of the arbitrator. 

"Sec. 579. Arbitration proceedings. 

"Sec. 580. Arbitration awards. 

"Sec. 581. Judicial review. 

"Sec. 582. Compilation of information. 

"Sec. 583. Support services. 

"SUBCHAPTER V-ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

"Sec. 591. Purpose. 

"Sec. 592. Definitions. 

"Sec. 593. Administrative Conference of the United States. 

"Sec. 594. Powers and duties of the Conference. 

"Sec. 595. Organization of the Conference. 

"Sec. 596. Authorization of appropriations.". 
SEC. 5. ADDITIONAL TECHNICAL AND CONFORMING AMENDMENTS. 

(A) NEGOTIATED RULEMAKING ACT OF 1990. -(1) Section 4 of the Negotiated 
Rulemaking Act of 1990 (Public Law 101-648; 104 Stat. 4976) is amended by 
striking "576" and inserting "596". 



Technical Amendments Act of 1 99 1 259 



1991 H.R. 2549 DECEMBER 2, 1991 — VERSION: 3 

section 5 of that Act is amended- 

(A) by striking "Subchapter IV" and inserting "Subchapter III of 
•hapter 5"; 

(B) by striking ", as added by section 3 of this Act," and 
inserting "(enacted as subchapter IV of chapter 5 of title 5, United 
States Code, by section 3 of this Act and redesignated as subchapter 
III of such chapter 5 by section (3) (a) of the Administrative 
procedure Technical Amendments Act of 1991)"; and 

(C) by striking "subchapter IV" and inserting "subchapter III". 

(b) ADMINISTRATIVE DISPUTE RESOLUTION ACT.-(l) Paragraph (3) of section 
71 of title 5, United States Code, as redesignated by section 3(b)(2) of 
chis Act, is amended by inserting a comma after "including". 

(2) Paragraph (8) of section 571 of title 5, United States Code, as 
redesignated by section 3(b)(2) of this Act, is amended to read as 
follows: 

"(8) issue in controversy means an issue which is material to a 
decision concerning an administrative program of an agency, and with 
which there is disagreement- 

"(A) between an agency and persons who would be substantially 
affected by the decision; or 

"(B) between persons who would be substantially affected by the 
decision, 
except that such term shall not include any matter specified under 
section 2302 or 7121(c) of this title;". 

(3) Subsection (g) of section 580 of title 5, United States Code, as 
redesignated by section 3(b)(2) of this Act, is amended by striking 
"attorney fees and expenses" and inserting "fees and other expenses". 

(4) Section 10(b) of title 9, United States Code (as added by section 5 
of the Administrative Dispute Resolution Act (Public Law 101-552; 104 
Stat. 2745) ) , is amended- 

(A) by striking "590" and inserting "580"; and 

(B) by striking "582" and inserting "572". 

(5) Section 203(f) of the Labor Management Relations Act, 1947 (as 
added by section 7 of the Administrative Dispute Resolution Act (104 
Stat. 2746)) is amended in the third sentence by striking "583" and 
inserting "573". 

(6) Section 10 of the Administrative Dispute Resolution Act (104 Stat. 
2747) is amended- 

(A) by striking "581" and inserting "571"; and 

(B) by striking ", as added by section 4(b) of this Act" and • 
inserting "(enacted as section 581 of title 5, United States Code, by 
section 4(b) of this Act, and redesignated as section 571 of such 
title by section 3(b) of the Administrative Procedure Technical 
Amendments Act of 1991)". 

Passed the House of Representatives November 25, 1991. 

Attest: DONNALD K. ANDERSON, 

* Clerk.* 



D 



Conference Roster of Neutrals Rules 



261 



Administrative Conference of the United States 

Roster rules, 1 CFR §§316.100-316.302 (1991) 
54 Fed. Reg. 39724 (September 28, 1989) 




Pt. 316 



PART 316— ROSTER OF DISPUTE 
RESOLUTION NEUTRALS 



Sec 

316.100 Scope and purpose. 

316.101 Definitions. 

316.102 AdministnUve responsibUiUes. 

Siihp«r t 1 t— tf; t«9i«tr«ti«fi and tvuMval 

316.200 The roster. 

316.201 Adherence to standards. 

316.202 Status of neutrals. 

316.203 RegistraUon. 

316.204 Rights of persons listed on the 
roster. 

316.205 RemovaL 



316.300 Request. 

316.301 Submissions of names of neutrals. 

316.302 Conflict of Interest; complaints. 

AvTHoarrr: Pub. I* 8S-499. 78 SUt. 615. 5 
X3JB.C, 571 through 575; 31 X3£.C. 9701. 

SOUKCC 54 PR 39724. Sept. 28. 1989. 
unless otherwise noted. 

Subport A — Cenf«r«nc« Rett«r; 
R«sponsibiliti«« 

§ 316.100 Scope and purpose. 

These rules are issued pursuant to 
the Administrative Conference Act, 5 
U.S.C. 571-575. providing authority to 
arrange for interchange among Feder- 
al administrative agencies of informa- 
tion potentially useful in improving 
administrative procedure, and to assist 
agencies to carry out regulatory activi- 
ties and other Federal responsibilities 
expeditiously in the public interest. 
This part applies to all neutrals listed 
or seeking to be listed on the Roster, 
and to all persons or parties seeking to 
obtain from the Conference the names 
of neutrals listed on the Roster in con- 



1 CFR Ch. Ill (1-1-92 Edition) 

nection with disputes involving Feder* 
al administrative programs and. within 
the Conference's discretion, other dis- 
putes. 

8 316.101 DefiniUons. 

(a) Administratix}e proffram means 
any program administered by a Feder- 
al agency and includes a Federal func- 
tion which involves protection of the 
public interest and the determination 
of rights, privileges, and obligations of 
private persons through rulemaking, 
adjudication, licensing, or investiga- 
tion, as such terms are used in section 
551 of title 5. U.S. Code. 

(b) Chairman means the Chairman 
of the Administrative Conference of 
the United States or his designee. 

(c) Dispute means any question ma- 
terial to a decision concerning an ad- 
ministrative program, or. within the 
Conference's discretion, any other de- 
cision, about which persons who would 
be substantially affected by the deci- 
sion or the agency disagree. 

(d) Neutral means an individual who 
or organization which serves as a con- 
ciliator, facilitator, mediator, fact- 
finder, trainer, special master, or arbi- 
trator, or otherwise functions specifi- 
cally to aid the parties in resolving a 
dispute or portions thereof. 

(e) Party means 

(1) For proceedings with designated 
parties, the same as in section 551(3) 
of title 5, U.S. Code: 

(2) For proceedings without desig- 
nated parties, a person who will be sig- 
nificantly affected by the decision and 
who participates in the proceedinr. 
and 

(3) The authorized representative of 
any agency charged with decisionmak- 
ing authority. 

(f ) Roster means a list maintained by 
the Chairman of persons qualified to 
provide services as neutrals in dis- 
putes. 

§ 3 1 6. 1 02 Administrative responsibilities. 

The Chairman may establish and 
maintain a Roster of persons to serve 
as neutrals in assisting parties in re- 
solving disputes involving administra- 
tive programs and, within his discre- 
tion, other disputes. The Chairman 
shall have final responsibility for ere- 



332 



262 



Administrative Dispute Resolution Act Appendix 



B 



Admin. Conference of the United States 

ation and maintenance of the Roster. 
The Chairman may review the status 
of all persons whose continued eligibil- 
ity for listing on the Roster has been 
questioned and make determinations 
about such eligibility according to the 
criteria set forth in S 316.205(a). 

Subpart B— Roster; Registration and 
Removal 

§316.200 The roster. 

(a) The Roster shall consist of a list- 
ing of persons who provide all infor- 
mation required by the neutral regis- 
tration form, and whose names have 
not been removed from the Roster in 
accordance with § 316.205(b). 

(b) Neither the Chairman nor the 
Conference will warrant the accuracy 
of the information furnished by i>er- 
sons listed on the Roster. 

§ 316.201 Adherence to standards. 

Persons listed on the Roster shall 
have committed in writing to comply 
with all provisions of part 316 and sub- 
sequent amendments hereto as from 
time to time may be issued by the 
Conference; 

§ 316.202 SUtus of neutrals. 

Persons listed on the Roster are not 
employees of the Conference or Feder- 
al Government by virtue of their list- 
ing. 

§ 316.203 Registration. 

(a) Persons wishing to be listed on 
the Roster will obtain and complete a 
current neutral registration form and 
have it notarized or otherwise attest- 
ed. 

(b) Upon receipt of a completed reg- 
istration form, the Chairman will 
review the form to assure that all re- 
quired information has been provided. 
The Chairman reserves the right to 
review and to verify data submitted, 
but any such attempts to verify sub- 
mitted data wiU not constitute a war- 
ranty of accuracy. A prospective regris- 
trant shall be notified promptly in 
writing of a decision that an applica- 
tion is accepted, incomplete or inaccu- 
rate. The Conference may require per- 
sons wishing to be listed to provide ad- 
ditional information from time to 



§ 316.205 

time. All decisions by the Chairman 
about whether a registration form is 
sufficiently complete and accurate are 
final. 

(c) At least once every two years, a 
person listed on the Roster will either 

(1) submit a new registration form, or 

(2) send the Chalnnan a short letter 
verlfsring the continuing accuracy of 
the person's current listing. 

(d) Persons wishing to be listed on 
the Roster must agree that the Chair- 
man may provide the names, addresses 
and telephone numbers of parties in 
cases handled. Including all cases to 
which the neutral was referred as a 
result of listing on the Roster. They 
shall also certify that all data supplied 
are accurate and agree to abide by eth- 
ical standards that may be promulgat- 
ed by the Society of Professionals in 
Dispute Resolution and such other 
standards as may be applicable to 
them. 

(e) The Chairman reserves the right 
to charge fees for obtaining or renew- 
ing listing or for using the Roster. 

§316.204 Rights of persons listed on the 
roster. 

(a) No person shall have any right to 
be listed, to remain listed, nor to be re- 
ferred or selected for any dispute. 

(b) A person listed on the Roster 
may request placement on inactive 
status, return to active status, or re- 
moval from the Roster. 

(c) Neutrals may request revision of 
data supplied on the neutral evalua- 
tion form, or any summaries thereof. 



§ 316.205 Removal. 

(a) Any person may be removed 
from the Roster by the Chairman 
whenever the neutral: 

(1) Is found to have submitted mate- 
rially false data in connection with 
registration on the Roster: 

(2) Pails or refuses to provide infor- 
mation required to obtain or maintain 
registration or to make reasonable and 
prompt reports, as required by Confer- 
ence procedures; 

(3) Falls to disclose any information 
required by section 302(a); 

(4) Has been the subject of com- 
plaints of significant imethlcal or ille- 
gal behavior by parties who use the 



333 



Conference Roster of Neutrals Rules 



263 



§316.300 

neutral's services as a result of referral 
from the Roster and the Chairman 
after appropriate inquiry finds just 
cause for removal; or 

(5) Is found by the Chairman to 
have improperly disclosed any record 
or communication arising from a pro- 
ceeding without the parties' consent 
unless such record or communication 
is properly ordered to be disclosed 
under the agency's applicable proce- 
dural rule or by a Court of competent 
jurisdiction. 

(b) Prior to removal under subsec- 
tion (a), the Chairman shall offer the 
neutral 45 days in which to submit ar- 
guments and evidence relevant to the 
decision. Any decision to remove a 
neutral's name from the Roster shall 
be accompanied by a brief statement 
of reasons. 

Subport C — Procedure for Obtoining 
Noin«» of Noutrols 

§316^00 Request 

Any party or parties to a dispute 
may file with the Chairman a written 
request for a list of neutrals. Tele- 
phone requests may be accepted at the 
Chairman's discretion. A request for 
the names of neutrals shall contain a 
brief statement of the nature of the 
dispute and the names, addresses and 
telephone numbers of all parties to 
the dispute. A request form has been 
prepared for parties' use. Requests 
should be addressed to: Manager of 
Roster Services, Office of the Chair- 
man, Administrative Conference of 
the United SUtes. 2120 L Street NW.. 
Suite 500. Washington, DC 20037. The 
initiating party shall also file a copy of 
the request with every other party to 
the dispute. Neither the request for. 
nor the furnishing of. a list of names 
constitutes a determination that an 
agreement to mediate or enter into 
any other dispute resolution proce- 
dure exists, nor does such action con- 
stitute any finding about the obliga- 
tions of the parties. 

9 316^01 Subroiulon of name* of neu- 
traU. 
(a) Upon receipt of a request for 
names involving a Federal administra- 
tive program, the Chairman shall ordi- 
narily send the requester approxi- 



1 CFR Ch. Ill (1-1.92 Edition) 

mately the requested number of 
names of listed neutrals who appear to 
be qualified and a biographical state- 
ment for each name so provided. The 
Chairman may in his discretion re- 
spond to requests regarding other dis- 
putes, and may establish procedures or 
guidance for the purpose of providing 
the parties with a list of names of neu- 
trals. If the parties cannot agree on a 
neutral after the receipt of these 
names, the Chairman may. on the re- 
quest of the parties and in his discre- 
tion, select an individual either named 
or not named in the list sent to the 
parties. 

(b) The Chairman reserves the right 
to decline to submit names if the re- 
quest is unduly burdensome or other- 
wise impracticable. 

(c) If Jointly requested by all parties, 
the Chairman may furnish a second, 
or third, list of names to the parties. 
Requests for further lists in that dis- 
pute wUl not be honored. 

(d) The parties shaU notify the 
Chairman of their selection of a neu- 
tral and of the identity of the neutral 
selected, or of the decision not to use 
the services of a neutral whose name 
was furnished by the Conference. 

6 316.302 Conflict of interest; complaints. 

(a) Any person listed on the Roster, 
who is contacted by a party to a dis- 
pute as a result of that listing, must 
disclose to all parties to that dispute, 
prior to beginning dispute resolution 
efforts, the following interests or rela- 
tionships: 

(1) Any existing or past financial, 
business, professional, family, social or 
other relationships with any of the 
parties to the dispute, their employ- 
ees, or their attorneys; 

(2) Previous or current involvement 
in the dispute at hand; 

(3) Past or prospective employment. 
Including employment as a neutral in 
previous disputes, by any of the par- 
Ues; 

(4) Past or present receipt of a sig- 
nificant portion of the neutral's gener- 
al operating funds or grants to the 
neutral or the organization by which 
the neutral is employed from one or 
more of the parties to the dispute; or 



a 



334 



264 Administrative Dispute Resolution Act Appendix 



B 



Admin. Conference of the United States 

(5) Any other circumstances likely to 
create a presumption of bias or the ap- 
pearance of bias. 

All scheduling conflicts which may 
prevent prompt meetings shall also be 
disclosed. Upon receipt of such infor- 
mation which resiilts in the disqualifi- 
cation of a neutral either by the 
Chairman or upon the request of any 
party, the Chairman may supply to 
the requesting party one or more addi- 
tional names from the Roster. 

(b) The Chairman may inquire into 
complaints alleging violations of legal 
or ethical standards by a neutral in a 
case handled pursuant to Roster list- 
ing. If such allegations are confirmed, 
the Chairman may remove the neu- 
tral's name from the Roster and retain 
the complaint in the neutral's file. 
The Chairman retains the right to 
notify legal or other authorities if 
there is reason to believe illegal or un- 
ethical activity has occurred. 



335 



Agency 

Practice 

Act 



B 



Citations: 

5 U.S.C. §500; enacted November 8, 1965, by Pub. L. No. 
89-332, 79 Stat. 1281; incorporated into the U.S. Code by Pub. L. 
No. 90-83, 81 Stat. 195 (September 11, 1967) (with minor stylistic 
changes). 



Overview: 

The Agency Practice Act provides that an attorney in good 
standing in any state may represent persons before federal 
agencies. An agency may require an attorney to file a written 
declaration of current qualification and to state that he is authorized 
to represent the particular person before the agency. Similarly, a 
duly qualified certified public accountant may represent persons 
before the Internal Revenue Service. The Act was intended to 
prohibit agency-established admission requirements for licensed 
attorneys and special enrollment requirements for CPAs. (Note: 
The Patent and Trademark Office is exempted from the Act.O The 
Act expressly neither grants nor denies other persons the right to 
practice before an agency, nor does it authorize or limit an 
agency's right to discipline or disbar persons practicing before it.^ 

In 1982, the Administrative Conference adopted a statement on 
discipline of attorneys practicing before federal agencies (1 CFR 
§310.8). After studying agency concerns and existing disciplinary 



^See 37 CFR Subch. A, Part 1 for Patent and Trademark Office practice procedures. 
For discussion of admission and discipline of attorneys under the Agency Practice Act, 
see Michael P. Cox, Regulation of Attorneys Practicing Before Federal Agencies, Report to 
the Administrative Conference of the U.S., 1982 ACUS (Vol. II) 491, reprinted in 34 Case 
Western Reserve L. Rev. 173, 186-193 (1984). 



266 Agency Practice Act 



procedures,^ the Conference concluded that any current problems 
concerning attorney discipline before federal agencies were not of 
such magnitude or so widespread as to require legislative action or 
the adoption of uniform federal standards. 



Legislative History: 

In 1957 the Department of Justice reconmiended discontinuing 
the practice of many agencies whereby attorneys were required to 
apply for acceptance by the agency as practitioners. Several bills 
were introduced in the early 1960s to abolish agency admission 
requirements. By 1965 few agencies retained admission 
requirements, and only the Treasury Department and the Patent 
Office objected to discontinuing them. (See House Judiciary 
Committee Report, cited below.) Pub. L. No. 89-332 was enacted 
in 1965 with the passage of S. 1758. 



Source Note: 

The House report on S. 1758 is reprinted in U.S. Code 
Congressional and Administrative News. Professor Michael P. 
Cox's 1982 report to the Administrative Conference discusses 
federal agency attorney discipline and contains an extensive 
bibliography. See also the statement of the Administrative 
Conference (1 CFR §310.8) and the reports of the Administrative 
Conference and American Bar Association conmiittees cited below. 

Also relevant is section 9 of the Administrative Dispute 
Resolution Act (see Chapter 3). 



3ld. 



Agency Practice Act 267 

Bibliography: 

I. Legislative History 

1. Senate Committee on the Judiciary, Report to Accompany S 
1758, S. Rep. No. 755, 89th Cong., 1st Sess. (1965). 

2. House of Representatives Committee on the Judiciary, 
Report to Accompany S. 1758, H.R. Rep. No. 1141, 89th Cong.,' 
1st Sess. (1965), reprinted in 1965 U.S. Code Congressional and 
Administrative News, 89th Cong., 1st Sess. at 4170. 

n. Other Government Documents 

1. Administrative Conference Committee on Governmental 
Processes, Report Concerning Discipline of Attorneys Practicing 
Before Federal Agencies, 1982 ACUS (Vol. II) 488. 

2. Administrative Conference of the U.S., Recommendation 
79-7, Appropriate Restrictions on Participation by a Former 
Agency Official in Matters Involving the Agency, 1 CFR §305.79-7 

3. Administrative Conference of the U.S., Recommendation 
86-1, Nonlawyer Assistance and Representation, 1 CFR §305.86-1 

4. Administrative Conference of the U.S., Statement on 
Discipline of Attorneys Practicing Before Federal Agencies, 1 CFR 
§310.8 (1992). 

m. Books and Articles 

1. American Bar Association, Report to the House of Delegates 
on Federal Agency Attorney Discipline (August 1982). 

2. Comment, Determining Secondary Liability under Securities 
Laws: Attorney Beware 1 , 11 Hamline L. Rev. 61, 96-104 (1988). 

3. Cox, Regulation of Attorneys Practicing Before Federal 
Agencies, Report to the Administrative Conference of the U S 
1982 ACUS (Vol. II) 491, reprinted in 34 Case W. Res L Rev' 



Agency Regulations: 

Agriculture 7 CFR §1.26 



268 Agency Practice Act 



Commodity Futures Trading 

Commission 17 CFR §§10.11, 14.1-.10 

Consumer Product Safety 

Commission 16 CFR §§1025.61-.67 

Drug Enforcement Administration 

(Justice) 21 CFR §§1316.50-.51 

Education 34 CFR §78.44 

Energy 10 CFR Chapter X 

Environmental Protection Agency 40 CFR §22. 10 

Farm Credit Administration 12 CFR Parts 622, 623 

Federal Communications Commission 47 CFR §§1.22-.25 

Federal Deposit Insurance Corporation 12 CFR §308.08 

Federal Energy Regulatory 

Commission 18 CFR §§385.2101-.2103 

Federal Maritime Conmiission 46 CFR §§502.21-.32 

Federal Mine Safety and 

Health Review Commission 29 CFR §§2700.3, 2700.80 

Federal Reserve Board 12 CFR §263.3 

Federal Trade Commission 16 CFR §4.1 

Food and Drug Administration 21 CFR §12.40 

Housing and Urban Development 24 CFR §§2. 11-. 13 

Office of Interstate Land 

Sales Registration 24 CFR §§1720.120, .130, .135 

Inmiigration and Naturalization 

Service (Justice) 8 CFR Part 292 

Interior 43 CFR Part 1 

Internal Revenue Service 31 CFR Part 10 

Interstate Conmierce Conmiission 49 CFR Part 1 103 

Labor (Employees' Compensation 

Appeals Board) 20 CFR §501.11 

Maritime Administration 

(Transportation) 46 CFR §§201.15-.26 

National Labor Relations Board 29 CFR Part 102 

National Transportation Safety Board 49 CFR §821.6 

Nuclear Regulatory Commission 10 CFR §2.713 

Occupational Safety and Health Review 

Commission 29 CFR §§2200. 1,2200.21 -.23 

Office of Thrift Supervision (Treasury) 12 CFR §509.5 

Postal Rate Commission 39 CFR §3001.6 

Postal Service 39 CFR Part 951 

Securities and Exchange Commission 17 CFR §201.2 

Small Business Administration 13 CFR Part 103 



Agency Practice Act 269 



Social Security Administration 

(Health and Human Services) 20 CFR §§404.1700-. 1799 

Treasury (Bureau of Alcohol, Tobacco, 

and Firearms) 31 CFR Part 8 

United States International Trade 

Conmiission 19 CFR §201.15 



Appendix: 

1. Agency Practice Act, 5 U.S.C. §500. 



D 



Agency Practice Act 271 

Agency Practice Act 

Title 5, U.S. Code 

Subchapter I - General Provisions 



§500. Administrative practice; general provisions 

(a) For the purpose of this section- 

(1) "agency" has the meaning given it by section 551 of this title; and 

(2) "State" means a State, a territory or possession of the United States 
including a Commonwealth, or the District of Columbia. 

(b) An individual who is a member in good standing of the bar of the highest 
court of a State may represent a person before an agency on filing with the agency 
a written declaration that he is currently qualified as provided by this subsection 
and is authorized to represent the particular person in whose behalf he acts. 

(c) An individual who is duly qualified to practice as a certified public 
accountant in a State may represent a person before the Internal Revenue Service 
of the Treasury Department on filing with that agency a written declaration that he 
is currently qualified as provided by this subsection and is authorized to represent 
the particular person in whose behalf he acts. 

(d) This section does not- 

(1) grant or deny to an individual who is not qualified as provided by 
subsection (b) or (c) of this section the right to appear for or represent a 
person before an agency or in an agency proceeding; 

(2) authorize or limit the discipline, including disbarment, of 
individuals who appear in a representative capacity before an agency; 

(3) authorize an individual who is a former employee of an agency to 
represent a person before an agency when the representation is prohibited by 
statute or regulation; or 

(4) prevent an agency from requiring a power of attorney as a 
condition to the settlement of a controversy involving the payment of money. 

(e) Subsections (b)-(d) of this section do not apply to practice before the Patent 
Office with respect to patent matters that continue to be covered by chapter 3 
(sections 31-33) of title 35. 

(f) When a participant in a matter before an agency is represented by an 
individual qualified under subsection (b) or (c) of this section, a notice or other 
written communication required or permitted to be given the participant in the 
matter shall be given to the representative in addition to any other service 
specifically required by statute. When a participant is represented by more than 
one such qualified representative, service on any one of the representatives is 
sufficient. 

(Added Pub. L. No. 90-83, §1(1)(A), Sept. 11, 1967, 81 Stat. 195.) 



a 



Claims and Debt 

Collection 

Acts 



Citations: 

Federal Claims Collection Act, 31 U.S.C. §3711 (a) through (e) 
(1988) (originally 31 U.S.C. §§951-953); enacted July 19, 1966 by 
Pub. L. No. 89-508, 80 Stat. 308; amended November 15, 1990 
by Pub. L. No. 101-552. 

Debt Collection Act, 5 U.S. Code §§552a (b) and (m), 5514; 18 
U.S.C. §1114; 26 U.S.C. §§6103, 7213; 28 U.S.C. §2415(i); 31 
U.S.C. §§3701, 3711(f), 3716-3719 (1988); enacted October 25, 
1982 by Pub. L. No. 97-365, 96 Stat. 1749; amended 
November 29, 1983 by Pub. L. No. 98-167, 97 Stat. 1104. 



Lead Agencies: 

U.S. General Accounting Office, General Government Division, 
Claims Group, 441 G Street NW, Washington, DC 20548 
(202) 275-3102. Department of Justice, Commercial Litigation 
Branch, Civil Division, Washington, DC 20530 (202) 514-3306. 
Office of Personnel Management, Office of Pay and Performance 
Management, 1900 E Street NW, Room 4351, Washington, DC 
20415 (202) 606-2880. 



Overview: 

Federal Claims Collection Act. This Act, passed in 1966, was 
intended to give agencies new flexibility in pursuing and 
compromising claims and to reduce litigation by obviating the need 
to refer many cases for collection to the General Accounting Office 
or the Department of Justice. It requires each agency to attempt 
collection of all government "claims" for money or property 



274 Claims and Debt Collection Acts 

arising out of the agency's activities. The Act, as amended by 
Pub L. No. 101-552, authorizes compromise of most non- 
fraudulent claims that do not exceed $100,000 (or more in the 
discretion of the Attorney General) (exclusive of interest) and 
termination of collection activities on such claims the debtor 
appears unable to pay or when collection costs are likely to exceed 
the amount recovered. Agency authority under the Act is to be 

B exercised pursuant to regulations promulgated by the head of an 

agency and in conformity with standards prescribed jointly by the 
Attorney General and the Comptroller General (§371 1(e)). (See 
Appendix for collection standards.) 

Debt Collection Act. Concerned over the mountmg billions m 
delinquent debt owed to the government, including defaulted 
student, veterans, and small business loans, in 1982 Congress 
amended the Claims Collection Act, Privacy Act, and other statutes 
to give agencies new collection tools. Prior to the Debt Collection 
Act, offset against the salary of federal employees under 5 U.S.C. 
§5514 was limited to the recovery of erroneous payments. The 
Debt Collection Act expanded this authority to include general 
debts owed to the United States. Salary offset is now authorized m 
amounts up to 15 percent of an employee's disposable pay for a 
given pay period, unless the employee consents to a larger amount. 
(Salary offset under other statutes applicable in specific contexts, 
such as 5 U.S.C. §5522(c), was not affected.) Also, for the first 
time, the Debt Collection Act provided a statutory basis for 
administrative offset against debtors generally, with certain 
exemptions (31 U.S.C. §3716). The Debt Collection Act 
prescribes procedural safeguards, including notice and an 
opportunity for a hearing, for salary offset (§55 14(a)(2)) and for 
administrative offset (§37 16(a)), although the procedures are 
somewhat different. Under either situation (5 U.S.C. §5514 or 31 
use §3716), offset may be made where an agency holds funds 
payable to a person indebted either to that or to another agency. 
The Act makes it clear that the statute of limitations for initiating 
legal action (28 U.S.C. §2415) does not apply to administrative 
offset, but prohibits administrative offset to collection claims that 
have been outstanding for more than 10 years. 
In addition, agencies have the authority to: 

■ Require loan applicants to furnish their social 
security numbers, permitting better review of credit 
backgrounds; 



Claims and Debt Collection Acts 275 

■ Assess interest, penalties and administrative 
costs on overdue debts, and waive them in 
appropriate cases; 

■ Assess the costs of processing some delinquent 
claims; 

■ Contract with private collection agencies to 
collect unpaid debts; 

■ Report delinquent debtors to credit reporting 
agencies, which the Act exempts from Privacy Act 
restrictions ordinarily applicable to government 
contractors; and 

■ Facilitate collection by disclosing, pursuant to 
specified protections, mailing addresses and 
otherwise private information about debtors. 

Debtors may be entitled to protections under laws other than 
the Debt Collection Act. For example, if an agency makes use of a 
consumer reporting agency, the consumer reporting agency must 
comply with the Fair Credit Reporting Act, 15 U.S.C. §§1681 et 
seq. (31 U.S.C. §3711(f)(l)(E)(iii)). If the agency uses a private 
debt collector, the collector must comply with the Fair Debt 
Collection Practices Act, 15 U.S.C. §§1692 et seq. (31 U S C 
§3718(a)(2)(B)). 

The Attorney General and Comptroller General's preexisting 
joint claims collection standards for agencies were modified in 
1984 in an effort to implement the Debt Collection Act and to 
revise and update the standards generally, (See Appendix.) 
Pursuant to Executive Orders 11,609 and 12,107, the standard- 
setting authority with respect to offsets of federal employees' 
salaries under 5 U.S.C. §5514 has been delegated to the Office of 
Personnel Management. (See Appendix for OPM's regulations.) 

Coverage. The Claims and Debt Collection Acts apply to 
amounts owing on account of loans insured or guaranteed by the 
U.S. and all other amounts due from fees, duties, leases, rents, 
royalties, services, sales, overpayments, fines, penalties, damages,' 
interests, taxes, and forfeitures. This would appear to include 
many cases of audit disallowances under grants and contracts. 
Most provisions of the Debt Collection Act do not apply to certain 
exempted debts, including those arising under the Internal Revenue 



B 



B 



276 Claims and Debt Collection Acts 



Code,* the Social Security Act, and the tariff laws. Independent of 
the Debt Collection Act, a few agencies such as the Department of 
Education and Department of Veterans Affairs have received 
authority, with slightly different restrictions, to contract with 
collection agencies (Pub. L. Nos. 96-466 and 96-374). A number 
of related statutes affect the government's rights to assert claims in 
various situations, including those of erroneous payments to 
employees. 

The Debt Collection Act excludes state and local governments 
from the sections on administrative offset and interest (§370 1(c)). 
The GAO-Justice standards take the position that the exclusion 
does not displace preexisting common law authority. Others 
contend that agencies created by statute have no such common law 
authority, and the scope of the exclusion remains a matter of some 
controversy. 

Uncertainties have also arisen about the scope of the Debt 
Collection Act's salary offset provision, the relationship between 
the Act and the Contract Disputes Act, and how soon an agency 
may begin assessing interest and penalties while it reviews a 
disputed claim. The Debt and Claims Collection Acts nowhere 
distinguish between a "claim" and "debt," and appear to use the 
terms interchangeably. Their legislative histories shed little light 
on these questions. Agency practices in some important areas 
vary. For instance, some consider audit disallowances as debts 
falling under the Act (thus authorizing assessment of penalties and 
interest during the resolution process), while others (such as the 
Department of Health and Human Services) view audit appeals as 
preliminary matters not subject to the Debt Collection Act's 
procedures or the Claims Collection Act's settlement ceiling. The 
Conference has recommended some procedural guidelines for 
agency handling of audit disputes under grants (Recommendation 
82-2). The Conference has also recommended some guidelines on 
debt collection through salary offset and administrative offsets 
under the Debt Collection Act, on routine adjustments of pay and 
on clarifying the Act's relation to other statutes affecting 
government claims. (Conference Recommendation 87-9.) 



* Administrative deductions from a federal employee's current salary to collect 
delinquent taxes are authorized, however, under a separate statute, 26 U.S.C. §6331. In 
addition. Congress has enacted separate legislation to authorize the offset of general debts 
against tax rcftinds. Pub. L. No. 98-369 (July 18, 1984), §2653, codified at 31 U.S.C. 
§3720A and 26 U.S.C. §§6402(d)-(g). 



Claims and Debt Collection Acts 277 

Legislative History: 

Claims Collection Act. Companion claims collection bills, 
H.R. 13651 and S. 3143, were introduced in the 89th Congress in 
accordance with the recommendation of the Department of Justice. 
The House Committee on the Judiciary favorably reported out 
H.R. 13651 on May 16, 1966. The House passed this bill on June 
6, 1966, after floor amendments were added to reduce the 
compromise limit from $20,000 to $5,000. The Senate Conmiittee 
on the Judiciary reported favorably on H.R. 13651 on June 24, 
1966, but favored reinstating the $20,000 limit. On June 27, 
1966, the Senate approved the version endorsed by the Senate 
Judiciary Committee. This bill was passed by the House on July 
11, 1966 and signed into law 8 days later. On November 15, 1990 
a new compromise limit was set at $100,000 (excluding interest) or 
such higher amount as the Attorney General may from time to time 
prescribe. (See Pub. L. No. 101-552.) 

Debt Collection Act. Much of the impetus behind the Act 
came from a series of GAO reports and the work of the Office of 
Management and Budget's Debt Collection Project. S. 1249 was 
introduced in early 1981 by Senator Percy, and referred 
sequentially to the Committee on Governmental Affairs and the 
Committee on Finance. The Committee on Governmental Affairs 
held two hearings on the bill in 1981 and, on July 17, 1981, 
ordered it reported with amendments. The Conmiittee on Finance, 
concerned with tax-related provisions of the bill, favorably 
reported it with ftirther amendments on December 3, 1981. The 
House bills (H.R. 4613 and H.R. 4614) received attention from 
several House committees, primarily the Judiciary Subcommittee 
on Administrative Law and Governmental Relations. H.R. 4613 
was passed in lieu of the Senate bill-on September 30, 1982 in the 
House and October 1, 1982 in the Senate-after its language was 
amended to reflect much of the latter. It became law on 
October 25, 1982. 



Source Note: 

Beyond their legislative histories, conmientary on these acts has 
been sparse. Jacqueline Leifer's Implementation of the Federal 
Debt Collection Act of 1982, a 1984 report to the Conference, 
surveys that statute, the implementing standards from GAO, 



B 



278 Claims and Debt Collection Acts 



Justice, and 0PM, and major procedural issues as perceived by 
agencies, interested parties and the author. Resources are also 
available on agencies' handling of some kinds of government 
claims, like audit disallowances. GAO and the Department of 
Justice have issued a number of decisions and opinions interpreting 
various portions of the acts and the joint standards. 



Bibliography: 



I. Legislative History 

1. Hearings before the Subcommittee on Administrative Law 
and Governmental Relations, House Committee on the Judiciary on 
HR, 4614, 97th Cong., 2d Sess. (1982). 

2. Hearings before the Senate Committee on Governmental 
Affairs on S. 1249, 97th Cong., 1st Sess. (1981). 

3. House of Representatives Committee on the Judiciary, 
Report to Accompany HR, 13651, Report No. 1533, 89th Cong., 
2d Sess. (1966). 

4. House of Representatives Conunittee on Ways and Means, 
Report to Accompany HR. 4613, Report No. 496, 97th Cong., 2d 
Sess. (1982). 

5. Senate Committee on Finance, Report to Accompany S, 
1249, Report No. 287, 97th Cong., 1st Sess. (1982), reprinted in 
1982 U.S. Code Cong. & Ad. News 3413. 

6. Senate Committee on Governmental Affairs, Report to 
Accompany S. 1249, Senate Report No. 378, 97th Cong., 2d Sess. 
(1982), reprinted in 1982 U.S. Code Cong. & Ad. News 3377. 

7. Senate Committee on the Judiciary, Report to Accompany 
HR. 13651, Report No. 1331, 89th Cong., 2d Sess. (1966), 
reprinted in 1966 U.S. Code Cong. & Ad. News 2532. 

n. Other Govemment Documents 

1. Administrative Conference of the U.S., Recommendation 
82-2, Resolving Disputes Under Federal Grant Programs, 1 CFR 
§305.82-2 (1992). 

2. Administrative Conference of the U.S., Recommendation 
87-9, Dispute Procedures in Federal Debt Collection, 1 CFR 
§305.87-9 (1992). 



Claims and Debt Collection Acts 279 



3. Leifer, Implementation of the Federal Debt Collection Act 
of 1982, Report to the Administrative Conference of the U.S., 
1984 ACUS 899 (1985). 

4. Office of Management and Budget, Debt Collection 
Project, Report on Strengthening Federal Credit Management 
(1981). 

5. U.S. General Accounting Office, Principles of Federal 
Appropriations Law (1982). 

6. U.S. General Accounting Office, The Government Can Be 
More Productive in Collecting Its Debts by Following Conunercial 
Practices, FGMSD-79-59 (February 23, 1979). 

7. U.S. General Accounting Office, The Government Can 
Collect Many Delinquent Debts by Keeping Federal Tax Refunds 
as Offsets, FGMSD-79-19 (March 9, 1979). 

8. U.S. General Accounting Office, Unresolved Issues 
Impede Federal Debt Collection Efforts-A Status Report, CD-80-1 
(January 15, 1980). 

9. U.S. General Accounting Office, Federal Agencies 
Negligent in Collecting Debts Arising From Audits, AFMD-82-32 
(January 22, 1982). 

10. U.S. General Accounting Office, Significant Improvements 
Seen in Efforts To Collect Debts Owed the Federal Government, 
AFMD-83-57 (April 28, 1983). 

11. White, Offset Dispute Procedures under the Debt 
Collection Act of 1982, 1987 ACUS 939. 



in. Books and Articles 

1. R. Cappalli, Rights and Remedies Under Federal Grants 
(Washington, DC: BNA 1979). 

2. Steinberg, Federal Grant Dispute Resolution, Report to the 
Administrative Conference of the U.S., portions reprinted in 1982 
ACUS 137 (Vol. 1) (1984); reprinted complete in B. Mezines, J. 
Stein, & J. Gruff, 5 Administrative Law Ch. 53 (T. Boasberg and 
A. Steinberg rev. eds., New York: Matthew Bender, 1985). 



B 



280 Claims and Debt Collection Acts 



Agency Regulations: 

African Development Foundation 22 CFR § 1 506 

Agency for International Development 22 CFR § 213 

Agriculture 7 CFR §3 

Air Force 32 CFR §842 

Coast Guard 33 CFR §25 

Commerce 15 CFR §§21, 22 

Commodity Credit Corporation 7 CFR §1403 

Commodity Futures Trading 

Commission 17 §§CFR 141, 143 

Consumer Product Safety Commission 16 CFR §1027 

Defense 32 CFR §§90, 268 

Defense Logistics Agency 32 CFR §1280 

Education 34 CFR §§30, 31, 32 

Energy 10 CFR §§1015, 1018 

Environmental Protection Agency 40 CFR § 1 3 

Farmers Home Administration 7 CFR §§1951, 1956 

Federal Communications Commission 47 CFR §1 

Federal Emergency Management Agency 44 CFR §11 

Federal Mediation and Conciliation 

Service 29 CFR §1450 

Fiscal Service 31 CFR §390 

Food and Nutrition Service 7 CFR §272 

General Services 

Administration 41 CFR §§105-55, 105-56 

Health and Human Services 45 CFR §§30, 31 

Housing and Urban Development 24 CFR §17 

Interstate Commerce Commission 49 CFR § 102 1 

Justice 28 CFR §11 

Labor 29 CFR §§2, 20 

Merit Systems Protection Board 5 CFR §1210 

National Aeronautics and Space 

Administration 14 CFR §1261 

National Endowment for the Arts 45 CFR §1150 

National Endowment for the 

Humanities 45 CFR §§1177, 1179 

Navy 32 CFR §757 

Nuclear Regulatory Commission 10 CFR §15 

Office of Personnel 

Management 5 CFR §§179, 831, 841, 845, 550 

Panama Canal Commission 35 CFR §256 

Peace Corps 22 CFR §309 



Claims and Debt Collection Acts 281 



Postal Service 39 CFR §§961, 966 

Railroad Retirement Board 20 CFR §§200, 361, 366 

Selective Service System 32 CFR §1697 

Small Business Administration 13 CFR Part 140 

Social Security Administration 20 CFR §410 

State 22 CFR §§34, 139 

Transportation 49 CFR §§89, 92 

Treasury 31 CFR §5 

United States Information Agency 22 CFR §512 

Urban Mass Transportation 

Administration 49 CFR §603 

Veterans Affairs 38 CFR §1 



Appendix: 

1. Federal Claims and Debt Collection Acts, 5 U.S.C. §§552a 
(b) and (m) and 5514; 18 U.S.C. §1114; 26 U.S.C. §§6103, 7213; 
28 U.S.C. §2415(1); 31 U.S.C. §§3701, 3711, 3716-3719 (1988). 

2. U.S. General Accounting Office/U.S. Department of 
Justice, Federal Claims Collection Standards, 4 CFR Parts 
101-105, 49 Fed. Reg. 8889 (March 9, 1984). 

3. Office of Personnel Management, Pay Administration 
Standards, 5 CFR §550.1101-. 1108, 49 Fed. Reg. 27470 
(July 3, 1984), 51 Fed. Reg. 16670 (May 16, 1986), 51 Fed. Reg. 
21325 (June 12, 1986). 




Claims and Debt Collection Acts 283 

Claims and Debt Collection Acts 
Title 5, U.S. Code 

§552a. Records Maintained on Individuals 

♦ ♦ ♦ ♦ 

(b) Conditions of Disclosure. 

No agency shall disclose any record which is contained in a system of records 
by any means of communication to any person, or to another agency, except 
pursuant to a written request by, or with the prior written consent of, the 
individual to whom the record pertains, unless disclosure of the record would be~ 

(1) to those officers and employees of the agency which maintains the record 
who have a need for the record in the performance of their duties; 

(2) required under section 552 of this title; 

(3) for a routine use as defmed in subsection (a)(7) of this section and 
described under subsection (e)(4)(D) of this section; 

(4) to the Bureau of the Census for purposes of planning or carrying out a 
census or survey or related activity pursuant to the provisions of title 13; 

(5) to a recipient who has provided the agency with advance adequate written 
assurance that the record will be used solely as a statistical research or reporting 
record, and the record is to be transferred in a form that is not individually 
identifiable; 

(6) to the National Archives and Records Administration as a record which 
has sufficient historical or other value to warrant its continued preservation by the 
United States Government, or for evaluation by the Archivist of the United States 
or the designee of the Archivist to determine whether the record has such value; 

(7) to another agency or to an instrumentality of any governmental jurisdiction 
within or under the control of the United States for a civil or criminal law 
enforcement activity if the activity is authorized by law, and if the head of the 
agency or instrumentality has made a written request to the agency which 
maintains the record specifying the particular portion desired and the law 
enforcement activity for which the record is sought; 

(8) to a person pursuant to a showing of compelling circumstances affecting 
the health or safety of an individual if upon such disclosure notification is 
transmitted to the last known address of such individual; 

(9) to either House of Congress, or, to the extent of matter within its 
jurisdiction, any committee or subcommittee thereof, any joint committee of 
Congress or subcommittee of any such joint committee; 

(10) to the Comptroller General, or any of his authorized representatives, in 
the course of the performance of the duties of the General Accounting Office; 

(11) pursuant to the order of a court of competent jurisdiction; or 

(12) to a consumer reporting agency in accordance with section 3711(f) of title 
31. 




B 



284 Claims and Debt Collection Acts Appendix 

* ♦ ♦ * 

(in)(l) Goyemment Contractors. 

When an agency provides by a contract for the operation by or on behalf of 
the agency of a system of records to accomplish an agency function, the agency 
shall, consistent with its authority, cause the requirements of this section to be 
applied to such system. For purposes of subsection (i) of this section any such 
contractor and any employee of such contractor, if such contract is agreed to on 
or after the effective date of this section, shall be considered to be an employee of 
an agency. 

(2) A consumer reporting agency to which a record is disclosed under section 
3711(f) of title 31 shall not be considered a contractor for the purposes of this 
section. 

♦ ♦ « * 

§5514. Installment deduction for indebtedness to the United States 

(a)(1) When the head of an agency or his designee determines that an 
employee, member of the Armed Forces or Reserve of the Armed Forces, is 
indebted to the United States for debts to which the United States is entitled to be 
repaid at the time of the determination by the head of an agency or his designee, 
or is notified of such a debt by the head of another agency or his designee the 
amount of indebtedness may be collected in monthly installments, or at officially 
established pay intervals, by deduction from the current pay account of the 
individual. The deductions may be made from basic pay, special pay, incentive 
pay, retired pay, retainer pay, or, in the case of an individual not entitled to basic 
pay, other authorized pay. The amount deducted for any period may not exceed 
15 percent of disposable pay, except that a greater percentage may be deducted 
upon the written consent of the individual involved. If the individual retires or 
resigns, or if his employment or period of active duty otherwise ends, before 
collection of the amount of the indebtedness is completed, deduction shall be made 
from subsequent payments of any nature due the individual from the agency 
concerned. 

(2) Except as provided in paragraph (3) of this subsection, prior to initiating 
any proceedings under paragraph (1) of this subsection to collect any indebtedness 
of an individual, the head of the agency holding the debt or his designee, shall 
provide the individual with- 

(A) a minimum of thirty days written notice, informing such individual of the 
nature and amount of the indebtedness determined by such agency to be due, the 
intention of the agency to initiate proceedings to collect the debt through 
deductions from pay, and an explanation of the rights of the individual under this 
subsection; 

(B) an opportunity to inspect and copy Government records relating to the 
debt; 



Claims and Debt Collection Acts 285 



(C) an opportunity to enter into a written agreement with the agency, under 
terms agreeable to the head of the agency or his designee, to establish a schedule 
for the repayment of the debt; and 

(D) an opportunity for a hearing on the determination of the agency 
concerning the existence or the amount of the debt, and in the case of an 
individual whose repayment schedule is established other than by a written 
agreement pursuant to subparagraph (C), concerning the terms of the repayment 
schedule. 

A hearing, described in subparagraph (D), shall be provided if the individual, 
on or before the fifteenth day following receipt of the notice described in 
subparagraph (A), and in accordance with such procedures as the head of the 
agency may prescribe, files a petition requesting such a hearing. The timely filing 
of a petition for hearing shall stay the commencement of collection proceedings. A 
hearing under subparagraph (D) may not be conducted by an individual under the 
supervision or control of the head of the agency, except that nothing in this 
sentence shall be construed to prohibit the appointment of an administrative law 
judge. The hearing official shall issue a final decision at the earliest practicable 
date, but not later than sixty days after the filing of the petition requesting the 
hearing. 

(3) The collection of any amount under this section shall be in accordance 
with the standards promulgated pursuant to sections 3711 and 3716-3718 of title 
31 or in accordance with any other statutory authority for the collection of claims 
of the United States or any agency thereof. 

(4) For purposes of this subsection- 

(A) "disposable pay" means that part of pay of any individual remaining after 
the deduction from those earnings of any amounts required by law to be withheld; 
and 

(B) "agency" includes the United States Postal Service and the Postal Rate 
Commission. 

(b)(1) The head of each agency shall prescribe regulations, subject to the 
approval of the President, to carry out this section and section 3530(d) of title 31. 
Regulations prescribed by the Secretaries of the military departments shall be 
uniform for the military services insofar as practicable. 

(2) For purposes of section 7117(a) of this title, no regulation prescribed to 
carry out subsection (a)(2) of this section shall be considered to be a Government- 
wide rule or regulation. 

(c) Subsection (a) of this section does not modify existing statutes which 
provide for forfeiture of pay or allowances. This section and section 3530(d) of 
title 31 do not repeal, modify, or amend section 4837(d) or 9837(d) of title 10 or 
section 1007(b), (c) of title 37. 

(Pub. L. No. 89-554, Sept. 6, 1966, 80 Stat. 477; Pub. L. No. 96-54, §2(a)(2), 
Aug. 14, 1979, 93 Stat. 381; Pub. L. No. 97-258, §3(a)(12), Sept. 13, 1982, 96 
Stat. 1063; Pub. L. No. 97-365, §5, Oct. 25, 1982, 96 Stat. 1751; Pub. L. No. 
97-452, §2(a)(2), Jan. 12, 1983, 96 Stat. 2478; Pub. L. No. 98-216, §3(a)(4), 
Feb. 14, 1984, 98 Stat. 6.) 



* * * * 



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286 Claims and Debt Collection Acts Appendix 

Title 18, U.S. Code 
§1114. Protection of officers and employees of the United States 

Whoever kills or attempts to kill any judge of the United States, any United 
States Attorney, any Assistant United States Attorney, or any United States 
marshal or deputy marshal or person employed to assist such marshal or deputy 
marshal, any officer or employee of the Federal Bureau of Investigation of the 
Department of Justice, any officer or employee of the Postal Service, any officer 
or employee of the Secret Service or of the Drug Enforcement Administration, 
any officer or member of the United States Capitol Police, any member of the 
Coast Guard, any employee of the Coast Guard assigned to perform investigative, 
inspection or law enforcement functions, any officer or employee of any United 
States penal or correctional institution, any officer, employee or agent of the 
customs or of the internal revenue or any person assisting him in the execution of 
his duties, any immigration officer, any officer or employee of the Department of 
Agriculture or of the Department of the Interior designated by the Secretary of 
Agriculture or the Secretary of the Interior to enforce any Act of Congress for the 
protection, preservation, or restoration of game and other wild birds and animals, 
any employee of the Department of Agriculture designated by the Secretary of 
Agriculture to carry out any law or regulation, or to perform any function in 
connection with any Federal or State program or any program of Puerto Rico, 
Guam, the Virgin Islands or any other commonwealth, territory, or possession of 
the United States, or the District of Columbia, for the control or eradication or 
prevention of the introduction or dissemination of animal diseases, any officer or 
employee of the National Park Service, any civilian official or employee of the 
Army Corps of Engineers assigned to perform investigations, inspections, law or 
regulatory enforcement functions, or field-level real estate functions, any officer 
or employee of, or assigned to duty in, the field service of the Bureau of Land 
Management, or any officer or employee of the Indian field service of the United 
States, or any officer or employee of the National Aeronautics and Space 
Administration directed to guard and protect property of the United States under 
the administration and control of the National Aeronautics and Space 
Administration, any security officer of the Department of State or the Foreign 
Service, or any officer or employee of the Department of Education, the 
Department of Health and Human Services, the Consumer Product Safety 
Commission, Interstate Commerce Commission, the Department of Commerce, or 
of the Department of Labor or of the Department of the Interior or of the 
Department of Agriculture assigned to perform investigative, inspection, or law 
enforcement functions, or any officer or employee of the Federal Communications 
Commission performing investigative, inspection, or law enforcement functions, 
or any officer or employee of the Department of Veterans Affairs assigned to 
perform investigative or law enforcement functions, or any United States 
probation or pretrial services officer, or any United States magistrate, or any 
officer or employee of any department or agency within the Intelligence 
Community (as defined in section 3.4(F) of Executive Order 12333, December 8, 
1981, or successor orders) not already covered under the terms of this section, 
any attorney, liquidator, examiner, claim agent, or other employee of the Federal 
Deposit Insurance Corporation, the Comptroller of the Currency, the Office of 



Claims and Debt Collection Acts 287 



Thrift Supervision, the Federal Housing Finance Board, the Resolution Trust 
Corporation, the Board of Governors of the Federal Reserve System, any Federal 
Reserve bank, or the National Credit Union Administration, or any other officer, 
agency, or employee of the United States designated for coverage under this 
section in regulations issued by the Attorney General engaged in or on account of 
the performance of his official duties, or any officer or employee of the United 
States or any agency thereof designated to collect or compromise a Federal claim 
in accordance with sections 3711 and 3716-3718 of title 31 or other statutory 
authority shall be punished as provided under sections 1111 and 1112 of this title, 
except that any such person who is found guilty of attempted murder shall be 
imprisoned for not more than twenty years. 

(June 25, 1948, ch. 645, 62 Stat. 756; May 24, 1949, ch. 139, §24, 63 Stat. 93; 
Oct. 31, 1951, ch. 655, §28, 65 Stat. 721; June 27, 1952, ch. 477, title IV, 
§402(c), 66 Stat. 276; July 29, 1958, Pub. L. No. 85-568, title III, §304(d), 72 
Stat. 434; July 2, 1962, Pub. L. No. 87-518, §10, 76 Stat. 132; Aug. 27, 1964, 
Pub. L. No. 88-493, §3, 78 Stat. 610; July 15, 1965, Pub. L. No. 89-74, §8(b), 
79 Stat. 234; Aug. 2, 1968, Pub. L. No. 90-449, §2, 82 Stat. 611; Aug. 12, 1970, 
Pub. L. No. 91-375, §6G)(9), 84 Stat. 777; Oct. 27, 1970, Pub. L. No. 91-513, 
title II, §701(i)(l), 84 Stat. 1282; Dec. 29, 1970, Pub. L. No. 91-596, §17(h)(l), 
84 Stat. 1607; Oct. 26, 1974, Pub. L. No. 93-481, §5, 88 Stat. 1456; May 11, 
1976, Pub. L. No. 94-284, §18, 90 Stat. 514; Oct. 21, 1976, Pub. L. No. 94-582, 
§16, 90 Stat. 2883; Aug. 3, 1977, Pub. L. No. 95-87, title VII, §704, 91 Stat. 
520; Nov. 8, 1978, Pub. L. No. 95-616, §3(j)(2), 92 Stat. 3112; Nov. 10, 1978, 
Pub. L. No. 95-630, title III, §307, 92 Stat. 3677; July 1, 1980, Pub. L. No. 96- 
296, §26(c), 94 Stat. 819; Oct. 17, 1980, Pub. L. No. 96-466, title VII, §704, 94 
Stat. 2216; Dec. 29, 1981, Pub. L. No. 97-143, §l(b), 95 Stat. 1724; Sept. 13, 
1982, Pub. L. No. 97-259, title I, §128, 96 Stat. 1099; Oct. 25, 1982, Pub. L. 
No. 97-365, §6, 96 Stat. 1752; Jan. 12, 1983, Pub. L. No. 97-452, §2(b), 96 Stat. 
2478; July 30, 1983, Pub. L. No. 98-63, title I, §101, 97 Stat. 313; Oct. 12, 
1984, Pub. L. No. 98-473, title II, §1012, 98 Stat. 2142; Oct. 30, 1984, Pub. L. 
No. 98-557, §17(c), 98 Stat. 2868; Nov. 18, 1988, Pub. L. No. 100-690, title 
VII, §7026, 102 Stat. 4397; Aug. 9, 1989, Pub. L. No. 101-73, title IX, 
§962(a)(6), 103 Stat. 502; Nov. 29, 1990, Pub. L. No. 101-647, title XII, 
§1205(h), title XVI, §1606, title XXXV, §3535, 104 Stat. 4831, 4843, 4925; June 
13, 1991, Pub. L. No. 102-54, §13(f)(2), 105 Stat. 275.) 

♦ * ♦ ♦ 

Title 26, U.S. Code 

§6103. Confidentiality and disclosure of returns and return 
information 

(a) General rule 

Returns and return information shall be confidential, and except as authorized 
by this title- 

(1) no officer or employee of the United States, 



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288 Claims and Debt Collection Acts Appendix 



(2) no officer or employee of any State, any local child support enforcement 
agency, or any local agency administering a program listed in subsection (1)(7)(D) 
who has or had access to returns or return information under this section, and 

(3) no other person (or officer or employee thereof) who has or had access to 
returns or return information under subsection (e)(l)(D)(iii), (1)(12), paragraph (2) 
or (4)(B) of subsection (m), or subsection (n), 

shall disclose any return or return information obtained by him in any manner 
in connection with his service as such an officer or an employee or otherwise or 
under the provisions of this section. For purposes of this subsection, the term 
"officer or employee" includes a former officer or employee. 

♦ ♦ ♦ ♦ 

(m) Disclosure of taxpayer identity information 

(1) Tax refunds 

The Secretary may disclose taxpayer identity information to the press and 
other media for purposes of notifying persons entitled to tax refunds when the 
Secretary, after reasonable effort and lapse of time, has been unable to locate such 
persons. 

(2) Federal claims 

(A) In general 

Except as provided in subparagraph (B), the Secretary may, upon written 
request, disclose the mailing address of a taxpayer for use by officers, employees, 
or agents of a Federal agency for purposes of locating such taxpayer to collect or 
compromise a Federal claim against the taxpayer in accordance with sections 
3711, 3717, and 3718 of title 31. 

(B) Special rule for consumer reporting agency 

In the case of an agent of a Federal agency which is a consumer reporting 
agency (within the meaning of section 603(f) of the Fair Credit Reporting Act (15 
U.S.C. 1681a(f))), the mailing address of a taxpayer may be disclosed to such 
agent under subparagraph (A) only for the purpose of allowing such agent to 
prepare a commercial credit report on the taxpayer for use by such Federal 
agency in accordance with sections 3711, 3717, and 3718 of title 31. 

(3) National Institute for Occupational Safety and Health 

Upon written request, the Secretary may disclose the mailing address of 
taxpayers to officers and employees of the National Institute for Occupational 
Safety and Health solely for the purpose of locating individuals who are, or may 
have been, exposed to occupational hazards in order to determine the status of 
their health or to inform them of the possible need for medical care and treatment. 



Claims and Debt Collection Acts 289 



(4) Individuals who have defaulted on student loans administered 
by the Department of Education 

(A) In general 

Upon written request by the Secretary of Education, the Secretary may 
disclose the mailing address of any taxpayer who has defaulted on a loan- 

(i) made under part B or E of title IV of the Higher Education Act of 1965, or 

(ii) made pursuant to section 3(a)(1) of the Migration and Refugee Assistance 
Act of 1962 to a student at an institution of higher education, 

for use only by officers, employees, or agents of the Department of Education 
for purposes of locating such taxpayer for purposes of collecting such loan. 

(B) Disclosure to educational institutions, etc. 

Any mailing address disclosed under subparagraph (A)(i) may be disclosed by 
the Secretary of Education to— 

(i) any lender, or any State or nonprofit guarantee agency, which is 
participating under part B of title IV of the Higher Education Act of 1965, or 

(ii) any educational institution with which the Secretary of Education has an 
agreement under part E of title IV of such Act, 

for use only by officers, employees, or agents of such lender, guarantee 
agency, or institution whose duties relate to the collection of student loans for 
purposes of locating individuals who have defaulted on student loans made under 
such loan programs for purposes of collecting such loans. 

(5) Individuals who have defaulted on student loans administered 
by the Department of Health and Human Services 

(A) In general 

Upon written request by the Secretary of Health and Human Services, 
the Secretary may disclose the mailing address of any taxpayer who has 
defaulted on a loan made under part C of title VII of the Public Health Service 
Act or under subpart II of part B of title VIII of such Act, for use only by 
officers, employees, or agents of the Department of Health and Human 
Services for purposes of locating such taxpayer for purposes of collecting 
such loan. 

(B) Disclosure to schools and digible lenders 

Any mailing address disclosed under subparagraph (A) may be disclosed by 
the Secretary of Health and Human Services to- 

(i) any school with which the Secretary of Health and Human 

Services has an agreement under subpart II of part C of title VII of the 

Public Health Service Act or subpart II of part B of title VIII of such Act, or 

(ii) any eligible lender (within the meaning of section 737(4) of 

such Act) participating under subpart I of part C of title VII of such Act, 

for use only by officers, employees, or agents of such school or eligible lender 

whose duties relate to the collection of student loans for purposes of locating 

individuals who have defaulted on student loans made under such subparts for the 

purposes of collecting such loans. 



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290 Claims and Debt Collection Acts Appendix 



(6) Blood Donor Locator Serrice 

(A) In general 

Upon written request pursuant to section 1141 of the Social Security 
Act, the Secretary shall disclose the mailing address of taxpayers to officers 
and employees of the Blood Donor Locator Service in the Department of 
Health and Human Services. 

(B) Restriction on disclosure 

The Secretary shall disclose return information under subparagraph (A) only 
for purposes of, and to the extent necessary in, assisting under the Blood Donor 
Locator Service authorized persons (as defined in section 1141(h)(1) of the Social 
Security Act) in locating blood donors who, as indicated by donated blood or 
products derived therefrom or by the history of the subsequent use of such blood 
or blood products, have or may have the virus for acquired immune deficiency 
syndrome, in order to inform such donors of the possible need for medical care 
and treatment. 

(C) Safeguards 

The Secretary shall destroy all related blood donor records (as defmed in 
section 1141(h)(2) of the Social Security Act) in the possession of the Department 
of the Treasury upon completion of their use in making the disclosure required 
under subparagraph (A), so as to make such records undisclosable. 

(7) Social security account statement furnished by Social Security 
Administration 

Upon written request by the Commissioner of Social Security, the Secretary 
may disclose the mailing address of any taxpayer who is entitled to receive a 
social security account statement pursuant to section 1143(c) of the Social Security 
Act, for use only by officers, employees or agents of the Social Security 
Administration for purposes of mailing such statement to such taxpayer. 

♦ ♦ * ♦ 



§7213. Unauthorized disclosure of information 

(a) Returns and return information 

(1) Federal employees and other persons 

It shall be unlawful for any officer or employee of the United States or any 
person described in section 6103(n) (or an officer or employee of any such 
person), or any former officer or employee, willftilly to disclose to any person, 
except as authorized in this title, any return or return information (as defmed in 
section 6103(b)). Any violation of this paragraph shall be a felony punishable 
upon conviction by a fme in any amount not exceeding $5,000, or imprisonment 
of not more than 5 years, or both, together with the costs of prosecution, and if 
such offense is committed by any officer or employee of the United States, he 



Claims and Debt Collection Acts 29 1 



shall, in addition to any other punishment, be dismissed from office or discharged 
from employment upon conviction for such offense. 

(2) State and other employees 

It shall be unlawful for any person (not described in paragraph (1)) willfully to 
disclose to any person, except as authorized in this title, any return or return 
information (as defined in section 6103(b)) acquired by him or another person 
under subsection (d), (i)(3)(B)(i), (1)(6), (7), (8), (9), (10), or (12), or (m)(2), (4), 
(6), or (7) of section 6103. Any violation ofthis paragraph shall be a felony 
punishable by a fine in any amount not exceeding $5,000, or imprisonment of not 
more than 5 years, or both, together with the costs of prosecution. 

(3) Other persons 

It shall be unlawful for any person to whom any return or return information 
(as defined in section 6103(b)) is disclosed in a manner unauthorized by this title 
thereafter willfully to print or publish in any manner not provided by law any such 
return or return information. Any violation of this paragraph shall be a felony 
punishable by a fine in any amount not exceeding $5,000, or imprisonment of not 
more than 5 years, or both, together with the costs of prosecution. 

(4) Solicitation 

It shall be unlawful for any person willfblly to offer any item of material value 
in exchange for any return or return information (as defined in section 6103(b)) 
and to receive as a result of such solicitation any such return or return 
information. Any violation ofthis paragraph shall be a felony punishable by a fine 
in any amount not exceeding $5,000, or imprisonment of not more than 5 years, 
or both, together with the costs of prosecution. 

(5) Shareholders 

It shall be unlawful for any person to whom a return or return information (as 
defined in section 6103(b)) is disclosed pursuant to the provisions of section 
6103(e)(l)(D)(iii) willfully to disclose such return or return information in any 
manner not provided by law. Any violation of this paragraph shall be a felony 
punishable by a fine in any amount not to exceed $5,000, or imprisonment of not 
more than 5 years, or both, together with the costs of prosecution. 

(b) Disclosure of operations of manufacturer or producer 

Any officer or employee of the United States who divulges or makes known in 
any manner whatever not provided by law to any person the operations, style of 
work, or apparatus of any manufacturer or producer visited by him in the 
discharge of his official duties shall be guilty of a misdemeanor and, upon 
conviction thereof, shall be fmed not more than $1,000, or imprisoned not more 
than 1 year, or both, together with the costs of prosecution; and the offender shall 
be dismissed from office or discharged from employment. 



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292 Claims and Debt Collection Acts Appendix 



(c) Disclosures by certain del^ates of Secretary 

All provisions of law relating to the disclosure of information, and all 
provisions of law relating to penalties for unauthorized disclosure of information, 
which are applicable in respect of any function under this title when performed by 
an officer or employee of the Treasury Department are likewise applicable in 
respect of such function when performed by any person who is a "delegate" 
within the meaning of section 7701(a)(12)(B). 

(d) Cross references 

(1) Penalties for disclosure of information by preparers of returns 

For penalty for disclosure or use of information by preparers of returns, see 
section 7216. 

(2) Penalties for disclosure of conndential information 

For penalties for disclosure of confidential information by any officer or 
employee of the United States or any department or agency thereof, see 18 
U.S.C. 1905. 

(Aug. 16, 1954, ch. 736, 68A Stat. 855; Sept. 2, 1958, Pub. L. No. 85-866, title 
I, §90(c), 72 Stat. 1666; Sept. 13, 1960, Pub. L. No. 86-778, title I, §103(s), 74 
Stat. 940; Oct. 4, 1976, Pub. L. No. 94-455, title XII, §1202(d), (h)(3), 90 Stat. 
1686, 1688; Nov. 6, 1978, Pub. L. No. 95-600, title VII, §701(bb)(l)(C). (6), 92 
Stat. 2922, 2923; May 26, 1980, Pub. L. No. 96-249, title I, § 127(a)(2)(D), 94 
Stat. 366; June 9, 1980, Pub. L. No. 96-265, title IV, §408(a)(2)(D), 94 Stat. 468, 
as amended Dec. 28, 1980, Pub. L. No. 96-611, §ll(a)(2)(B)(iv), 94 Stat. 3574; 
Dec. 5, 1980, Pub. L. No. 96-499, title III, §302(b), 94 Stat. 2604; Dec. 28, 
1980, Pub. L. No. 96-611, §ll(a)(4)(A), 94 Stat. 3574; Sept. 3, 1982, Pub. L. 
No. 97-248, title III, §356(b)(2), 96 Stat. 645; Oct. 25, 1982, Pub. L. No. 97- 
365, §8(c)(2), 96 Stat. 1754; July 18, 1984, Pub. L. No. 98-369, div. A, title IV, 
§453(b)(4), div. B, title VI, §2653(b)(4), 98 Stat. 820, 1156; Aug. 16, 1984, Pub. 
L. No. 98-378, §21(f)(5), 98 Stat. 1326; Oct. 13, 1988, Pub. L. No. 100-485, 
title VII, §701(b)(2)(C), 102 Stat. 2426; Nov. 10, 1988, Pub. L. No. 100-647, 
title VIII, §8008(c)(2)(B), 102 Stat. 3787; Dec. 19, 1989, Pub. L. No. 101-239, 
title VI, §6202(a)(l)(C), 103 Stat. 2228; Nov. 5, 1990, Pub. L. No. 101-508, title 
V, §5111(b)(3), 104 Stat. 1388-273.) 

♦ ♦ * ♦ 



Title 28, U.S. Code 

§2415. Time for commencing actions brought by the United States 

(a) Subject to the provisions of section 2416 of this title, and except as 
otherwise provided by Congress, every action for money damages brought by the 
United States or an officer or agency thereof which is founded upon any contract 
express or implied in law or fact, shall be barred unless the complaint is filed 
within six years after the right of action accrues or within one year after final 
decisions have been rendered in applicable administrative proceedings required by 



Claims and Debt Collection Acts 293 



contract or by law, whichever is later: Provided , That in the event of later partial 
payment or written acknowledgment of debt, the right of action shall be deemed to 
accrue again at the time of each such payment or acknowledgment: Provided 
further. That an action for money damages brought by the United States for or on 
behalf of a recognized tribe, band or group of American Indians shall not be 
barred unless the complaint is filed more than six years and ninety days after the 
right of action accrued: Provided further , That an action for money damages 
which accrued on the date of enactment of this Act in accordance with subsection 
(g) brought by the United States for or on behalf of a recognized tribe, band, or 
group of American Indians, or on behalf of an individual Indian whose land is 
held in trust or restricted status, shall not be barred unless the complaint is filed 
sixty days after the date of publication of the list required by section 4(c) of the 
Indian Claims Limitation Act of 1982: Provided, That, for those claims that are 
on either of the two lists published pursuant to the Indian Claims Limitation Act of 
1982, any right of action shall be barred unless the complaint is filed within (1) 
one year after the Secretary of the Interior has published in the Federal Register a 
notice rejecting such claim or (2) three years after the date the Secretary of the 
Interior has submitted legislation or legislative report to Congress to resolve such 
claim or more than two years after a fmal decision has been rendered in 
applicable administrative proceedings required by contract or by law, whichever 
is later. 

(b) Subject to the provisions of section 2416 of this title, and except as 
otherwise provided by Congress, every action for money damages brought by the 
United States or an officer or agency thereof which is founded upon a tort shall be 
barred unless the complaint is filed within three years after the right of action first 
accrues: Provided , That an action to recover damages resulting from a trespass 
on lands of the United States; an action to recover damages resulting from fire to 
such lands; an action to recover for diversion of money paid under a grant 
program; and an action for conversion of property of the United States may be 
brought within six years after the right of action accrues, except that such actions 
for or on behalf of a recognized tribe, band or group of American Indians, 
including actions relating to allotted trust or restricted Indian lands, may be 
brought within six years and ninety days after the right of action accrues, except 
that such actions for or on behalf of a recognized tribe, band, or group of 
American Indians, including actions relating to allotted trust or restricted Indian 
lands, or on behalf of an individual Indian whose land is held in trust or restricted 
status which accrued on the date of enactment of this Act in accordance with 
subsection (g) may be brought on or before sixty days after the date of the 
publication of the list required by section 4(c) of the Indian Claims Limitation Act 
of 1982: Provided, That, for those claims that are on either of the two lists 
published pursuant to the Indian Claims Limitation Act of 1982, any right of 
action shall be barred unless the complaint is filed within (1) one year after the 
Secretary of the Interior has published in the Federal Register a notice rejecting 
such claim or (2) three years after the Secretary of the Interior has submitted 
legislation or legislative report to Congress to resolve such claim. 

(c) Nothing herein shall be deemed to limit the time for bringing an action to 
establish the title to, or right of possession of, real or personal property. 

(d) Subject to the provisions of section 2416 of this title and except as 
otherwise provided by Congress, every action for the recovery of money 



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294 Claims and Debt Collection Acts Appendix 



erroneously paid to or on behalf of any civilian employee of any agency of the 
United States or to or on behalf of any member or dependent of any member of 
the uniformed services of the United States, incident to the employment or 
services of such employee or member, shall be barred unless the complaint is 
filed within six years after the right of action accrues: Provided, That in the event 
of later partial payment or written acknowledgment of debt, the right of action 
shall be deemed to accrue again at the time of each such payment or 
acknowledgment. 

(e) In the event that any action to which this section applies is timely brought 
and is thereafter dismissed without prejudice, the action may be recommenced 
within one year after such dismissal, regardless of whether the action would 
otherwise then be barred by this section. In any action so recommenced the 
defendant shall not be barred from interposing any claim which would not have 
been barred in the original action. 

(f) The provisions of this section shall not prevent the assertion, in an action 
against the United States or an officer or agency thereof, of any claim of the 
United States or an officer or agency thereof against an opposing party, a co- 
party, or a third party that arises out of the transaction or occurrence that is the 
subject matter of the opposing party's claim. A claim of the United States or an 
officer or agency thereof that does not arise out of the transaction or occurrence 
that is the subject matter of the opposing party's claim may, if time-barred, be 
asserted only by way of offset and may be allowed in an amount not to exceed the 
amount of the opposing party's recovery. 

(g) Any right of action subject to the provisions of this section which accrued 
prior to the date of enactment of this Act shall, for purposes of this section, be 
deemed to have accrued on the date of enactment of this Act. 

(h) Nothing in this Act shall apply to actions brought under the Internal 
Revenue Code or incidental to the collection of taxes imposed by the United 
States. 

(i) The provisions of this section shall not prevent the United States or an 
officer or agency thereof from collecting any claim of the United States by means 
of administrative offset, in accordance with section 3716 of title 31. 
(Added Pub. L. No. 89-505, §1, July 18, 1966, 80 Stat. 304, and amended Pub. 
L. No. 92-353, July 18, 1972, 86 Stat. 499; Pub. L. No. 92-485, Oct. 13, 1972, 
86 Stat. 803; Pub. L. No. 95-64, July 11, 1977, 91 Stat. 268; Pub. L. No. 95- 
103, Aug. 15, 1977, 91 Stat. 842; Pub. L. No. 96-217, §1, Mar. 27, 1980, 94 
Stat. 126; Pub. L. No. 97-365, §9, Oct. 25, 1982, 96 Stat. 1754; Pub. L. No. 97- 
394, title I, §2, Dec. 30, 1982, 96 Stat. 1976; Pub. L. No. 97-452, §2(d)(2), Jan. 
12, 1983, 96 Stat. 2478; Pub. L. No. 98-250, §4(a), Apr. 3, 1984, 98 Stat. 118.) 

♦ ♦ « ♦ 



Claims and Debt Collection Acts 295 



Title 31, U.S. Code 

§3701. Deflnitions and application 

(a) In this chaptcr- 

(1) "administrative offset" means withholding money payable by the United 
States Government to, or held by the Government for, a person to satisfy a debt 
the person owes the Government. 

(2) "calendar quarter" means a 3-month period beginning on January 1 , April 
1, July 1, or October 1. 

(3) "consumer reporting agency" means— 

(A) a consumer reporting agency as that term is defined in section 603(f) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(f)); or 

(B) a person that, for money or on a cooperative basis, regularly— 

(i) gets information on consumers to give the information to a consumer 
reporting agency; or 

(ii) serves as a marketing agent under an arrangement allowing a third party to 
get the information from a consumer reporting agency. 

(4) "executive or legislative agency" means a department, agency, or 
instrumentality in the executive or legislative branch of the Government. 

(5) "military department" means the Departments of the Army, Navy, and Air 
Force. 

(6) "system of records" has the same meaning given that term in section 
552a(a)(5)oftitle5. 

(7) "uniformed services" means the Army, Navy, Air Force, Marine Corps, 
Coast Guard, Commissioned Corps of the National Oceanic and Atmospheric 
Administration, and Commissioned Corps of the Public Health Service. 

(b) In subchapter II of this chapter, "claim" includes amounts owing on 
account of loans insured or guaranteed by the Government and other amounts due 
the Government. 

(c) In sections 3716 and 3717 of this title, "person" does not include an 
agency of the United States Government, of a State government, or of a unit of 
general local government. 

(d) Sections 3711(f) and 3716-3719 of this title do not apply to a claim or debt 
under, or to an amount payable under, the Internal Revenue Code of 1986 (26 
U.S.C. 1 et seq.), the Social Security Act (42 U.S.C. 301 et seq.), or the tariff 
laws of the United States. 

(Pub. L. No. 97-258, Sept. 13, 1982, 96 Stat. 970; Pub. L. No. 97-452, 
§1(13)(A), Jan. 12, 1983, 96 Stat. 2469; Pub. L. No. 99-514, §2, Oct. 22, 1986, 
100 Stat. 2095.) 

Short Title of 1986 Amendment 

Pub. L. No. 99-562, §1, Oct. 27, 1986, 100 Stat. 3153, provided that: "This 
Act [enacting sections 3732 and 3733 of this title and amending sections 3729 to 
3731 of this title and section 287 of Title 18, Crimes and Criminal Procedure] 
may be cited as the ' False Claims Amendments Act of 1986'." 



H 



B 



296 Claims and Debt Collection Acts Appendix 



United SUtes Senate as LegislatiTe Agency; Regulations Promulgated by 
Secretary of Senate 

Pub. L. No. 101-163, title I, §11, Nov. 21, 1989, 103 Stat. 1046, provided 
that: 

"(a) For purposes of subchapters I and II of chapter 37 of title 31, United 
States Code (relating to claims of or against the United States Government), the 
United States Senate shall be considered to be a legislative agency (as defined in 
section 3701(a)(4) of such title), and the Secretary of the Senate shall be deemed 
to be the head of such legislative agency. 

"(b) Regulations prescribed by the Secretary of the Senate pursuant to section 
3716 of title 31, United States Code, shall not become effective until they are 
approved by the Senate Committee on Rules and Administration." 

* « « ♦ 

§3711. Collection and compromise 

(a) The head of an executive or legislative agency- 

(1) shall try to collect a claim of the United States Government for money or 
property arising out of the activities of, or referred to, the agency; 

(2) may compromise a claim of the Government of not more than $100,000 
(excluding interest) or such higher amount as the Attorney General may from time 
to time prescribe that has not been referred to another executive or legislative 
agency for further collection action; and 

(3) may suspend or end collection action on a claim referred to in clause (2) of 
this subsection when it appears that no person liable on the claim has the present 
or prospective ability to pay a significant amount of the claim or the cost of 
collecting the claim is likely to be more than the amount recovered. 

(b) The Comptroller General has the same authority that the head of the 
agency has under subsection (a) of this section when the claim is referred to the 
Comptroller General for further coUection action. Only the Comptroller General 
may compromise a claim arising out of an exception the Comptroller General 
makes in the account of an accountable official. 

(c)(1) The head of an executive or legislative agency may not act under 
subsection (a)(2) or (3) of this section on a claim that appears to be fraudulent, 
false, or misrepresented by a party with an interest in the claim, or that is based 
on conduct in violation of the antitrust laws. 

(2) The Secretary of Transportation may not compromise for less than $250 a 
penalty under section 6 of the Act of March 2, 1893 (45 U.S.C. 6), section 4 of 
the Act of April 14, 1910 (45 U.S.C. 13), section 9 of the Act of February 17, 
1911 (45 U.S.C. 34), and section 25(h) of the Interstate Commerce Act (49 App. 
U.S.C. 26(h)). 

(d) A compromise under this section is final and conclusive unless gotten by 
fraud, misrepresentation, presenting a false claim, or mutual mistake of fact. An 
accountable official is not liable for an amount paid or for the value of property 
lost or damaged if the amount or value is not recovered because of a compromise 
under this section. 

(e) The head of an executive or legislative agency acts under— 
(1) regulations prescribed by the head of the agency; and 



Claims and Debt Collection Acts 297 



(2) standards that the Attorney General and the Comptroller General may 
prescribe jointly. 

(f)(1) When trying to collect a claim of the Government under a law except the 
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.), the head of an executive or 
legislative agency may disclose to a consumer reporting agency information from 
a system of records that an individual is responsible for a claim if- 

(A) notice required by section 552a(e)(4) of title 5 indicates that information in 
the system may be disclosed to a consumer reporting agency; 

(B) the head of the agency has reviewed the claim and decided that the claim 
is valid and overdue; 

(C) the head of the agency has notified the individual in writing- 
(i) that payment of the claim is overdue; 

(ii) that, within not less than 60 days after sending the notice, the head of the 
agency intends to disclose to a consumer reporting agency that the individual is 
responsible for the claim; 

(iii) of the specific information to be disclosed to the consumer reporting 
agency; and 

(iv) of the rights the individual has to a complete explanation of the claim, to 
dispute information in the records of the agency about the claim, and to 
administrative repeal or review of the claim; 

(D) the individual has not- 

(i) repaid or agreed to repay the claim under a written repayment plan that the 
individual has signed and the head of the agency has agreed to; or 

(ii) filed for review of the claim under paragraph (2) of this subsection; 

(E) the head of the agency has established procedures to- 

(i) disclose promptly, to each consumer reporting agency to which the original 
disclosure was made, a substantial change in the condition or amount of the claim; 

(ii) verify or correct promptly information about the claim on request of a 
consumer reporting agency for verification of information disclosed; and 

(iii) get satisfactory assurances from each consumer reporting agency that the 
agency is complying with all laws of the United States related to providing 
consumer credit information; and 

(F) the information disclosed to the consumer reporting agency is limited to— 
(i) information necessary to establish the identity of the individual, including 

name, address, and taxpayer identification number; 
(ii) the amount, status, and history of the claim; and 
(iii) the agency or program under which the claim arose. 

(2) Before disclosing information to a consumer reporting agency under 
paragraph (1) of this subsection and at other times allowed by law, the head of an 
executive or legislative agency shall provide, on request of an individual alleged 
by the agency to be responsible for the claim, for a review of the obligation of the 
individual, including an opportunity for reconsideration of the initial decision on 
the claim. 

(3) Before disclosing information to a consumer reporting agency under 
paragraph (1) of this subsection, the head of an executive or legislative agency 
shall take reasonable action to locate an individual for whom the head of the 
agency does not have a current address to send the notice under paragraph (1)(C). 
(Pub. L. No. 97-258, Sept. 13, 1982, 96 Stat. 971; Pub. L. No. 97-452, §1(15), 
Jan. 12, 1983, 96 Stat. 2470; Pub. L. No. 98-216, §1(5), Feb. 14, 1984, 98 Stat. 



E 



298 Claims and Debt Collection Acts Appendix 



i 



4; Pub. L. No. 99-514, §2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. No. 101-552, 
§8(b), Nov. 15, 1990, 104 Stat. 2746.) 

Existing Agency Authority To Litigate, Settle, Compromise, or Close Claims 

Pub. L. No. 89-508, §4, July 19, 1966, 80 Stat. 309, provided that: "Nothing 
in this Act [now this section] shall increase or diminish the existing authority of 
the head of an agency to litigate claims, or diminish his existing authority to settle, 
compromise, or close claims." 

§3712. Time limitations for presenting certain claims of the 
Government 

(a) Claims Over Forged or Unauthorized Endorsements. 

(1) Period for claims. If the Secretary of the Treasury determines that a 
Treasury check has been paid over a forged or unauthorized endorsement, the 
Secretary may reclaim the amount of such check from the presenting bank or any 
other endorser that has breached its guarantee of endorsements prior to 

(A) the end of the 1-year period beginning on the date of payment; or 

(B) the expiration of the 180-day period beginning on the close of the period 
described in subparagraph (A) if a timely claim is received under section 3702. 

(2) Civil actions. (A) Except as provided in subparagraph (B), the United 
States may bring a civil action to enforce the liability of an endorser, transferor, 
depository, or fiscal agent on a forged or r authorized signature or endorsement 
on, or a change in, a check or warrant issued by the Secretary of the Treasury, 
the United States Postal Service, or any disbursing official or agent not later than 
1 year after a check or warrant is presented to the drawee for payment. 

(B) If the United States has given an endorser written notice of a claim against 
the endorser within the time allowed by subparagraph (A), the 1-year period for 
bringing a civil action on that claim under subparagraph (A) shaU be extended by 
3 years. 

(3) Effect on agency authority. Nothing in this subsection shall be construed 
to limit the authority of any agency under subchapter II of chapter 37 of this title. 

(b) Notwithstanding subsection (a) of this section, a civil action may be 
brought within 2 years after the claim is discovered when an endorser, transferor, 
depositary, or fiscal agent fraudulently conceals the claim from an officer or 
employee of the Government entitled to bring the civil action. 

(c) The Comptroller General shall credit the appropriate account of the 
Treasury for the amount of a check or warrant for which a civil action cannot be 
brought because notice was not given within the time required under subsection 
(a) of this section if the failure to give notice was not the result of negligence of 
the Secretary. 

(d) The Government waives all claims against a person arising from dual pay 
from the Government if the dual pay is not reported to the Comptroller General 
for collection within 6 years from the last date of a period of dual pay. 

(Pub. L. No. 97-258, Sept. 13, 1982, 96 Stat. 971; Pub. L. No. 100-86, title X, 
§1004(a), Aug. 10, 1987, 101 Stat. 659.) 



Claims and Debt Collection Acts 299 



§3716. Administrative offset 

(a) After trying to collect a claim from a person under section 3711(a) of this 
title, the head of an executive or legislative agency may collect the claim by 
administrative offset. The head of the agency may collect by administrative offset 
only after giving the debtor— 

(1) written notice of the type and amount of the claim, the intention of the 
head of the agency to collect the claim by administrative offset, and an 
explanation of the rights of the debtor under this section; 

(2) an opportunity to inspect and copy the records of the agency related to the 
claim; 

(3) an opportunity for a review within the agency of the decision of the agency 
related to the claim; and 

(4) an opportunity to make a written agreement with the head of the agency to 
repay the amount of the claim. 

(b) Before collecting a claim by administrative offset under subsection (a) of 
this section, the head of an executive or legislative agency must prescribe 
regulations on collecting by administrative offset based on— 

(1) the best interests of the United States Government; 

(2) the likelihood of collecting a claim by administrative offset; and 

(3) for collecting a claim by administrative offset after the 6-year period for 
bringing a civil action on a claim under section 2415 of title 28 has expired, the 
cost effectiveness of leaving a claim unresolved for more than 6 years. 

(c) This section does not apply— 

(1) to a claim under this subchapter that has been outstanding for more than 
10 years; or 

(2) when a statute explicitly provides for or prohibits using administrative 
offset to collect the claim or type of claim involved. 

(Added Pub. L. No. 97-452, §1(16)(A), Jan. 12, 1983, 96 Stat. 2471.) 

§3717. Interest and penalty on claims 

(a)(1) The head of an executive or legislative agency shall charge a minimum 
annual rate of interest on an outstanding debt on a United States Government 
claim owed by a person that is equal to the average investment rate for the 
Treasury tax and loan accounts for the 12-month period ending on September 30 
of each year, rounded to the nearest whole percentage point. The Secretary of the 
Treasury shall publish the rate before November 1 of that year. The rate is 
effective on the first day of the next calendar quarter. 

(2) The Secretary may change the rate of interest for a calendar quarter if the 
average investment rate for the 12-month period ending at the close of the prior 
calendar quarter, rounded to the nearest whole percentage point, is more or less 
than the existing published rate by 2 percentage points. 

(b) Interest under subsection (a) of this section accrues from the date— 

(1) on which notice is mailed after October 25, 1982, if notice was fu-st mailed 
before October 25, 1982; or 

(2) notice of the amount due is first mailed to the debtor at the most current 
address of the debtor available to the head of the executive or legislative agency, 
if notice is first mailed after October 24, 1982. 



I 



B 



300 Claims and Debt Collection Acts Appendix 



(c) The rate of interest charged under subsection (a) of this section- 

(1) is the rate in effect on the date from which interest begins to accrue under 
subsection (b) of this section; and 

(2) remains fixed at that rate for the duration of the indebtedness. 

(d) Interest under subsection (a) of this section may not be charged if the 
amount due on the claim is paid within 30 days after the date from which interest 
accrues under subsection (b) of this section. The head of an executive or 
legislative agency may extend the 30-day period. 

(e) The head of an executive or legislative agency shall assess on a claim 
owed by a person- 

(1) a charge to cover the cost of processing and handling a delinquent claim; 
and 

(2) a penalty charge of not more than 6 percent a year for failure to pay a part 
of a debt more than 90 days past due. 

(f) Interest under subsection (a) of this section does not accrue on a charge 
assessed under subsection (e) of this section. 

(g) This section does not apply- 

(1) if a statute, regulation required by statute, loan agreement, or contract 
prohibits charging interest or assessing charges or explicitly fixes the interest or 
charges; and 

(2) to a claim under a contract executed before October 25, 1982, that is in 
effect on October 25, 1982. 

(h) In conformity with standards prescribed jointly by the Attorney General 
and the Comptroller General, the head of an executive or legislative agency may 
prescribe regulations identifying circumstances appropriate to waiving collection 
of interest and charges under subsections (a) and (e) of this section. A waiver 
under the regulations is deemed to be compliance with this section. 
(Added Pub L. 97-452, §1(16)(A), Jan. 12, 1983, 96 Stat. 2472.) 

§3718. Contracts for collection services 

(a) Under conditions the head of an executive or legislative agency considers 
appropriate, the head of the agency may make a contract with a person for 
collection services to recover indebtedness owed the United States Government. 
The contract shall provide that- 

(1) the head of the agency retains the authority to resolve a dispute, 
compromise a claim, end collection action, and refer a matter to the Attorney 
General to bring a civil action; and 

(2) the person is subject to- 

(A) section 552a of title 5, to the extent provided in section 552a(m); and 

(B) laws and regulations of the United States Government and State 
governments related to debt collection practices. 

(b)(1)(A) The Attorney General may make contracts retaining private counsel 
to furnish legal services, including representation in negotiation, compromise, 
settlement, and litigation, in the case of any claim of indebtedness owed the 
United States. Each such contract shall include such terms and conditions as the 
Attorney General considers necessary and appropriate, including a provision 
specifying the amount of the fee to be paid to the private counsel under such 
contract or the method for calculating that fee. The amount of the fee payable for 



Claims and Debt Collection Acts 301 



legal services iumished under any such contract may not exceed the fee that 
counsel engaged in the private practice of law in the area or areas where the legal 
services are furnished typicaUy charge clients for furnishing legal services in the 
collection of claims of indebtedness, as determined by the Attorney General, 
considering the amount, age, and nature of the indebtedness and whether the 
debtor is an individual or a business entity. If the Attorney General makes a 
contract for legal services to be furnished in any judicial district of the United 
States under the first sentence of this paragraph, the Attorney General shall use 
his best efforts to obtain, from among attorneys regularly engaged in the private 
practice of law in such district, at least four such contracts for legal services with 
private individuals or firms in such district. Nothing in this subparagraph shall 
relieve the Attorney General of the competition requirements set forth in title III of 
the Federal Property and Administrative Services Act of 1949 (41 U.S. C. 251 and 
following). 

(B) The Attorney General shall use his best efforts to enter into contracts 
under this paragraph with law firms owned and controlled by socially and 
economically disadvantaged individuals, so as to enable each agency to comply 
with paragraph (3). 

(2) The head of an executive or legislative agency may, subject to the 
approval of the Attorney General, refer to a private counsel retained under 
paragraph (1) of this subsection claims of indebtedness owed the United States 
arising out of activities of that agency. 

(3) Each agency shall use its best efforts to assure that not less than 10 percent 
of the amounts of all claims referred to private counsel by that agency under 
paragraph (2) are referred to law firms owned and controlled by socially and 
economically disadvantaged individuals. For purposes of this paragraph 

(A) the term "law firm owned and controlled by socially and economically 
disadvantaged individuals" means a law firm that meets the requirements set forth 
in clauses (i) and (ii) of section 8(d)(3)(C) of the Small Business Act (15 U.S.C. 
6376(d)(3)(C)(i) and (ii)) and regulations issued under those clauses; and 

(B) "socially and economically disadvantaged individuals" shall be presumed 
to include these groups and individuals described in the last paragraph of section 
8(d)(3)(C) of the Small Business Act. 

(4) Notwithstanding sections 516, 518(b), 519, and 547(2) of title 28, a private 
counsel retained under paragraph (1) of this subsection may represent the United 
States in litigation in connection with legal services fiimished pursuant to the 
contract entered into with that counsel under paragraph (1) of this subsection. 

(5) A contract made with a private counsel under paragraph (1) of this 
subsection shall include 

(A) a provision permitting the Attorney General to terminate either the 
contract or the private counsel's representation of the United States in particular 
cases if the Attorney General finds that such action is for the convenience of the 
Government; 

(B) a provision stating that the head of the executive or legislative agency 
which refers a claim under the contract retains the authority to resolve a dispute 
regarding the claim, to compromise the claim, or to terminate a collection action 
on the claim; and 

(C) a provision requiring the private counsel to transmit monthly to the 
Attorney General and the head of the executive or legislative agency referring a 



B 



B 



302 Claims and Debt Collection Acts Appendix 



claim under the contract a report on the services relating to the claim rendered 
under the contract during the month and the progress made during the month in 
collecting the claim under the contract. 

(6) Notwithstanding the fourth sentence of section 803(6) of the Fair Debt 
Collection Practices Act (15 U.S.C. 1692a(6)), a private counsel performing legal 
services pursuant to a contract made under paragraph (1) of this subsection shall 
be considered to be a debt coUector for the purposes of such Act. 

(7) Any counterclaim filed in any action to recover indebtedness owed the 
United States which is brought on behalf of the United States by private counsel 
retained under this subsection may not be asserted unless the counterclaim is 
served directly on the Attorney General or the United States Attorney for the 
judicial district in which, or embracing the place in which, the action is brought. 
Such service shall be made in accordance with the rules of procedure of the court 
in which the action is brought. 

(c) The Attorney General shall transmit to the Congress an annual report on 
the activities of the Department of Justice to recover indebtedness owed the 
United States which was referred to the Department of Justice for collection. Each 
such report shall include a list, by agency, of 

(1) the total number and amounts of claims which were referred for legal 
services to the Department of Justice and to private counsel under subsection (b) 
during the 1-year period covered by the report; 

(2) the total number and amount of those claims referred for legal services to 
the Department of Justice which were collected or were not collected or otherwise 
resolved during the 1-year period covered by the report; and 

(3) the total number and amount of those claims referred for legal services to 
private counsel under subsection (b) 

(A) which were collected or were not collected or otherwise resolved during 
the 1-year period covered by the report; 

(B) which were not collected or otherwise resolved under a contract 
terminated by the Attorney General during the 1-year period covered by the 
report; and 

(C) on which the Attorney General terminated the private counsel's 
representation during the 1-year period covered by the report without terminating 
the contract with the private counsel under which the claims were referred. 

(d) Notwithstanding section 3302(b) of this title, a contract under subsection 
(a) or (b) of this section may provide that a fee a person charges to recover 
indebtedness owed the United States Government is payable from the amount 
recovered. 

(e) A contract under subsection (a) or (b) of this section is effective only to the 
extent and in the amount provided in an appropriation law. This limitation does 
not apply in the case of a contract that authorizes a person to collect a fee as 
provided in subsection (d) of this section. 

(f) This section does not apply to the collection of debts under the Internal 
Revenue Code of 1986 (26 U.S.C. 1 et seq.). 

(Added Pub. L. No. 97-452, §1(16)(A), Jan. 12, 1983, 96 Stat. 2473, and 
amended Pub. L. No. 98-167, Nov. 29, 1983, 97 Stat. 1104; Pub. L. No. 99-514, 
§2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. No. 99-578, §1, Oct. 28, 1986, 100 
Stat. 3305.) 



Claims and Debt Collection Acts 303 



§3719. Reports on debt collection activities 

(a) In consultation with the Secretary of the Treasury and the ComptroUer 
General, the Director of the Office of Management and Budget shall prescribe 
regulations requiring the head of each agency with outstanding debts to prepare 
and submit to the Director and the Secretary at least once each year a report 
summarizing the status of loans and accounts receivable managed by the head of 
the agency. The report shall contain- 

(1) information on— 

(A) the total amount of loans and accounts receivable owed the agency and 
when amounts owed the agency are due to be repaid; 

(B) the total amount of receivables and number of claims at least 30 days past 
due; 

(C) the total amount written off as actually uncollectible and the total amount 
allowed for uncollectible loans and accounts receivable; 

(D) the rate of interest charged for overdue debts and the amount of interest 
charged and collected on debts; 

(E) the total number of claims and the total amount collected; and 

(F) the number and total amount of claims referred to the Attorney General for 
settlement and the number and total amount of claims the Attorney General settles; 

(2) the information described in clause (1) of this subsection for each program 
or activity the head of the agency carries out; and 

(3) other information the Director considers necessary to decide whether the 
head of the agency is acting aggressively to collect the claims of the agency. 

(b) The Director shall analyze the reports submitted under subsection (a) of 
this section and shaU report annuaUy to Congress on the management of debt 
coUection activities by the head of each agency, including the information 
provided the Director under subsection (a). 
(Added Pub. L. No. 97-452, §1(16)(A), Jan. 12, 1983, 96 Stat. 2473.) 



B 



Federal Claims Collection Standards 305 

U.S. General Accounting Office/U.S. Department of Justice 

Federal Claims Collection Standards 
4 CFR Parts 101-105, 49 Fed. Reg. 8889 (March 9, 1984) 



CHAPTER II— FEDERAL CLAIMS COLLECTION 

STANDARDS (GENERAL ACCOUNTING 

OFFICE— DEPARTMENT OF JUSTICE) 



^""^^ Page 

101 Scope of standards X02 

102 Standards for the administrative collection of 

claims j^q3 

103 Standards for the compromise of claims 112 

104 Standards for suspending or terminating collec- 

tion action 114 

105 Referrals to Department of Justice or GAO ...!!....!!! 117 



101 



306 



Claims and Debt Collection Acts Appendix 



B 



§101.1 
PART 101— SCOPE OF STANDARDS 

Sec. 

101.1 Prescription of standards. 

101.2 Definitions. 

101.3 Antitrust, fraud, tax. and interagen- 
cy claims excluded. 

101.4 Compromise, waiver, or disposition 
under other statutes not precluded. 

101.5 Conversion claims. 

101.6 Subdivision of claims not authorized. 

101.7 Required administrative proceedings. 

101.8 Omissions not a defense. 

AtTTHORiTY: 31 U.S.C. 3711. 

Source: 49 FR 8896. Mar. 9. 1984. unless 
otherwise noted. 

§ 101.1 Prescription of standards. 

The regulations in this chapter, 
issued jointly by the Comptroller Gen- 
eral of the United States and the At- 
torney General of the United States 
under 31 U.S.C. 3711(e)(2). prescribe 
standards for the administrative col- 
lection, compromise, termination of 
agency collection, and the referral to 
the General Accounting Office, and to 
the Department of Justice for litiga- 
tion, of civil claims as defined by 31 
U.S.C. 3701(b), by the Federal Govern- 
ment for money or property. Addition- 
al guidance is contained in Title 4 of 
the General Accounting Office Policy 
and Procedures Manual for Guidance 
of Federal Agencies. Regulations pre- 
scribed by the head of an agency pur- 
suant to 31 U.S.C. 3711(e)(1) will be re- 
viewed by the General Accounting 
Office as a part of its audit of the 
agency's activities. 

§ 101.2 Dennitions. 

(a) Claim and debt For the purposes 
of these standards, the terms "claim" 
and "debt" are deemed synonymous 
and interchangeable. They refer to an 
amount of money or property which 
has been determined by an appropri- 
ate agency official to be owed to the 
United States from any person, organi- 
zation, or entity, except another Fed- 
eral agency. 

(b) A debt is considered "delinquent" 
if it has not been paid by the date 
specified in the agency's initial written 
notification (§ 102.2 of this chapter) or 
applicable contractual agreement, 
unless other satisfactory payment ar- 
rangements have been made by that 



4 CFR Ch. II (1-1>91 Edition) 

date, or if. at any time thereafter, the 
debtor fails to satisfy obligations 
under a payment agreement with the 
creditor agency. 

(c) As used in this chapter, "referral 
for litigation" means referral to the 
Department of Justice for appropriate 
legal proceedings, unless the agency 
concerned has statutory authority for 
handling its own litigation. 

(d) In this chapter, words in the 
plural form shall include the singular 
and vice versa; and words importing 
the masculine gender shall include the 
feminine and vice versa. The terms 
"includes" and "including" do not ex- 
clude matters not listed but which are 
in the same general class. 

§ 101.3 Antitrust, fraud, tax, and inter- 
agency claims excluded. 

(a) The standards in this chapter re- 
lating to compromise, suspension, and 
termination of collection action (Parts 
103 and 104) do not apply to any claim 
based in whole or in part on conduct 
in violation of the antitrust laws, or to 
any claim as to which there is an indi- 
cation of fraud, the presentation of a 
false claim, or misrepresentation on 
the part of the debtor or any other 
party having an interest in the claim. 
Only the Department of Justice has 
authority to compromise, suspend, or 
terminate collection action on such 
claims. The standards in this chapter 
relating to the administrative collec- 
tion of claims (Part 102) do apply, but 
only to the extent authorized by the 
Department of Justice in a particular 
case. Upon identification of a claim of 
any of the types described in the first 
sentence of this paragraph, the agency 
involved should refer the matter 
promptly to the Department of Jus- 
tice. At its discretion, the Department 
of Justice may return the claim to the 
forwarding agency for further han- 
dling in accordance with the regula- 
tions in this chapter. 

(b) Tax claims, as to which differing 
exemptions, administrative consider- 
ations, enforcement considerations, 
and statutes apply, are also excluded 
from the coverage of this chapter. 

(c) This chapter does not apply to 
claims between Federal agencies. Fed- 
eral agencies should attempt to resolve 



102 



Federal Claims Collection Standards 



307 



Federal Claims Collection Standards 

interagency claims by negotiation. If 
the claim cannot be resolved by the 
agencies involved, it should be re- 
ferred to the General Accounting 
Office. 

§ 101.4 Compromise, waiver, or disposi- 
tion under other statutes not preclud- 
ed. 
Nothing contained in this chapter is 
intended to preclude agency disposi- 
tion of any claim under statutes and 
implementing regulations other than 
Subchapter II of Chapter 37 of Title 
31 of the United States Code and 
these Standards, providing for the col- 
lection, compromise, termination of 
collection action, or waiver in whole or 
in part of such a claim. See, for exam- 
ple, the Federal Medical Care Recov- 
ery Act, 76 Stat. 593. 42 U.S.C. 2651 et 
seq.. and applicable regulations, 28 
CFR 43,1 et seq. In such cases, the 
laws and regulations which are specifi- 
cally applicable to claims collection ac- 
tivities of a particular agency take 
precedence over this chapter. Except 
as provided in § 102.19 of this chapter 
(Exemptions), the standards set forth 
in this chapter should be followed in 
the disposition of civil claims by the 
Federal Government by collection, 
compromise, or termination of collec- 
tion action (other than by waiver pur- 
suant to other statutory authority) 
where neither the specific statute nor 
its implementing regulations establish 
standards governing such matters. 

§ 101.5 Conversion claims. 

The instructions contained in this 
chapter are directed primarily at the 
recovery of money on behalf of the 
United States And the circumstances 
in which Government claims may be 
disposed of for less than the full 
amount claimed. Nothing contained in 
this chapter is intended, however, to 
deter an agency from demanding the 
return of specific property or from de- 
manding, in the alternative, either the 
return of the property or the payment 
of its value. 

9 101.6 Subdivision of claims not author- 
ized. 

Claims may not be subdivided to 
avoid the monetary ceiling established 
by 31 U.S.C. 3711(a)(2). A debtor's li- 



§101.8 

ability arising from a particular trans- 
action or contract shall be considered 
a single claim in determining whether 
the claim is one of less than $20,000, 
exclusive of interest, penalties, and ad- 
ministrative costs, for purposes of 
compromise (§ 103.1 of this chapter) or 
suspension or termination of collection 
action (§ 104.1 of this chapter), 

§ 101.7 Required administrative proceed- 
ing. 

Nothing contained in this chapter is 
intended to require an agency to omit, 
foreclose, or duplicate administrative 
proceedings required by contract or 
other laws or regulations. 

§ 101.8 Omissions not a defense. 

The standards set forth in this chap- 
ter shall apply to the administrative 
handling of civil claims of the Federal 
Government for money or property 
but the failure of an agency to comply 
with any provision of this chapter 
shall not be available as a defense to 
any debtor. 

PART 102~STANDARDS FOR THE 
ADMINISTRATIVE COLLECTION OF 
CLAIMS 

Sec. 

102.1 Aggressive agency collection action. 

102.2 Demand for payment. 

102.3 Collection by administrative offset. 

102.4 Administrative offset against 
amounts payable from Civil Service Re- 
tirement and Disability Fund. 

102.5 Use of consumer reporting agencies. 

102.6 Contracting for collection services. 

102.7 Personal interview with debtor. 

102.8 Contact with debtor's employing 
agency. 

102.9 Suspension or revocation of license 
or eligibility. 

102.10 Liquidation of collateral. 

102.11 Collection in installments. 

102.12 Exploration of compromise. 

102.13 Interest, penalties, and administra- 
tive costs. 

102.14 Analysis of costs. 

102.15 Documentation of administrative 
collection action. 

102.16 Automation. 

102.17 Prevention of overpayments, delin- 
quencies, and defaults. 

102.18 Use and disclosure of mailing ad- 
dresses. 

102.19 Exemptions. 



B 



103 



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§102.1 



4 CFR Ch. II (1-1-91 Edition) 




Sec. 

102.20 Additional administrative collection 
action. 

Authority: Subchapter II of Chapter 37 
of Title 31. U. S. C. . 

Source: 49 FR 8897. Mar. 9. 1984. unless 
otherwise noted. 

§ 102.1 Aggressive agency collection 
action. 

(a) Each Federal agency shall take 
aggressive action, on a timely basis 
with effective followup. to collect all 
claims of the United States for money 
or property arising out of the activi- 
ties of, or referred to, that agency in 
accordance with the standards set 
forth in this chapter. However, noth- 
ing contained in this chapter is intend- 
ed to require the General Accounting 
Office or the Department of Justice to 
duplicate collection actions previously 
undertaken by any other agency, or to 
perform collection actions which 
should have been undertaken by any 
other agency in accordance with the 
standards set forth in this chapter. 

(b) All agencies are expected to co- 
operate with one another in their debt 
collection activities. 

§ 102.2 Demand for payment. 

(a) Appropriate written demands 
shall be made promptly upon a debtor 
of the United States in terms which 
inform the debtor of the consequences 
of failure to cooperate. A total of 
three progressively stronger written 
demands at not more than 30-day in- 
tervals will normally be made unless a 
response to the first or second demand 
indicates that a further demand would 
be futile and the debtor's response 
does not require rebuttal. In determin- 
ing the timing of demand letters, agen- 
cies should give due regard to the need 
to act promptly so that, as a general 
rule, if necessary to refer the debt to 
the Department of Justice for litiga- 
tion, such referral can be made within 
one year of the agency's final determi- 
nation of the fact and the amount of 
the debt. When necessary to protect 
the Government's interests (for exam- 
ple, to prevent the statute of limita- 
tions, 28 U.S.C. 2415, from expiring), 
written demand may be preceded by 
other appropriate actions under this 



chapter, including immediate referral 
for litigation. 

(b) The initial demand letter should 
inform the debtor of: (1) The basis for 
the indebtedness and whatever rights 
the debtor may have to seek review 
within the agency; (2) the applicable 
standards for assessing interest, i:>enal- 
ties, and administrative costs 
(§ 102.13); and (3) the date by which 
payment is to be made, which normal- 
ly should be not more than 30 days 
from the date that the initial demand 
letter was mailed or hand-delivered. 
Agencies should exercise care to insure 
that demand letters are mailed or 
hand-delivered on the same day that 
they are actually dated. Apart from 
this, there is no prescribed format for 
the demand letters. Agencies should 
utilize demand letters and procedures 
that will lead to the earliest practica- 
ble determination of whether the debt 
can be resolved administratively or 
must be referred for litigation. 

(c) As appropriate to the circum- 
stances, agencies may consider includ- 
ing, either in the initial demand letter 
or in subsequent letters, such items as 
the agency's willingness to discuss al- 
ternative methods of payment, policies 
with respect to use of consumer re- 
porting agencies (§ 102.5) and collec- 
tion services (§ 102.6), the agency's in- 
tentions with respect to referral of the 
debt to the Department of Justice for 
litigation, and. depending on applica- 
ble statutory authority, the debtor's 
entitlement to consideration of waiver. 

(d) Agencies should respond prompt- 
ly to communications from the debtor, 
within 30 days whenever feasible, and 
should advise debtors who dispute the 
debt to furnish available evidence to 
support their contentions. 

(e) If, either prior to the initiation 
of, at any time during, or after com- 
pletion of the demand cycle, an agency 
determines to pursue offset, then the 
procedures specified in §§ 102.3, 102.4. 
or 5 U.S.C. 5514. as applicable, should 
be followed. The availability of funds 
for offset and the agency's determina- 
tion to pursue it release the agency 
from the necessity of further compli- 
ance with paragraphs (a), (b), and (c) 
of this section. If the agency has not 
already sent the first demand letter, 
the agency's written notification of its 



104 



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309 



Federal Claims Collection Standards 

intent to offset must give the debtor 
the opportunity to make voluntary 
payment, a requirement which will be 
satisfied by compliance with the 
notice requirements of §§ 102.3. 102.4. 
or 5 U.S.C. 5514. 

§ 102.3 Collection by administrative offset 

(a) Collection by administrative 
offset will be undertaken in accord- 
ance with these standards and imple- 
menting regulations established by 
each agency on all claims which are 
liquidated or certain in amount In 
every instance in which such collec- 
tion is determined to be feasible and 
not otherwise prohibited. 

(1) For purposes of this section, the 
term "administrative offset" has the 
meaning provided in 31 U.S.C. 
3716(a)(1). 

(2) Whether collection by adminis- 
trative offset is feasible is a determina- 
tion to be made by the creditor agency 
on a case-by-case basis, in the exercise 
of sound discretion- Agencies should 
consider not only whether administra- 
tive offset can be accomplished, both 
practically and legally, but also wheth- 
er offset is best suited to further and 
protect all of the Government's inter- 
ests. In appropriate circumstances, 
agencies may give due consideration to 
the debtor's financial condition, and 
are not required to use offset in every 
instance in which there is an available 
source of funds. Agencies may also 
consider whether offset would tend to 
substantially interfere with or defeat 
the purposes of the program authoriz- 
ing the payments against which offset 
is contemplated. For example, under a 
grant program in which payments are 
made in advance of the grantee's per- 
formance, offset will normally be inap- 
propriate. This concept generally does 
not apply, however, where payment is 
in the form of reimbursement. 

(b) Except as provided in § 101.4. 
this paragraph or § 102.4. the stand- 
ards in this paragraph shall apply to 
the collection of debts by administra- 
tive offset under 31 U.S.C. 3716. some 
other statutory authority, or the 
common law. 

(1) Agencies shall prescribe regula- 
tions for the exercise of administrative 
offset. 



§102.3 

(2) Agency regulations required by 
paragraph (b)(1) of this section shall 
establish procedures for providing a 
debtor, before the offset is made, with 
appropriate procedural rights. Except 
as otherwise required by law, those 
regulations shall provide for Written 
notice of the nature and amount of 
the debt, and the agency's intention to 
collect by offset: opportunity to in- 
spect and copy agency records pertain- 
ing to the debt: opportunity to obtain 
review within the agency of the deter- 
mination of indebtedness: and oppor- 
tunity to enter into a written agree- 
ment with the agency to repay the 
debt. Agency regulations shall also es- 
tablish procedures for making requests 
for offset to other agencies holding 
funds payable to the debtor, and for 
processing requests for offset that are 
received from other agencies. 

(i) Agencies have discretion and 
should exercise sound judgment in de- 
termining whether to accept a repay- 
ment agreement in lieu of offset. The 
determination should balance the 
Government's interest in collecting 
the debt against fairness to the debtor. 
If the debt is delinquent and the 
debtor has not disputed its existence 
or amount, an agency should accept a 
repayment agreement in lieu of offset 
only if the debtor is able to establish 
that offset would result in undue fi- 
nancial hardship or would be against 
equity and good conscience. 

(ii) In cases where the procedural re- 
quirements specified in paragraph 
(b)(2) of this section have previously 
been provided to the debtor in connec- 
tion with the same debt under some 
other statutory or regulatory author- 
ity, such as pursuant to a notice of 
audit disallowance, the agency is not 
required to duplicate those require- 
ments before taking administrative 
offset. 

(3) Agencies may not initiate admin- 
istrative offset to collect a Jebt under 
31 U.S.C. 3716 more than 10 years 
after the Government's right to collect 
the debt first accrued, unless facts ma- 
terial to the Government's right to 
collect the debt were not known and 
could not reasonably have been known 
by the official or officials of the Gov- 
ernment who were charged with the 
responsibility to discover and collect 



B 



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310 



Claims and Debt Collection Acts Appendix 



§102.3 



4 CFR Ch. II (1.1-91 Edition) 



B 



such debts. When the debt first ac- 
crued is to be determined according to 
existing law regarding the accrual of 
debts, such as under 28 U.S.C. 2415. 

(4) Agencies are not authorized by 
31 U.S.C. 3716 to use administrative 
offset with respect to: (i) Debts owed 
by any State or local Government; (ii) 
debts arising under or payments made 
under the Social Security Act, the In- 
ternal Revenue Code of 1954, or the 
tariff laws of the United States; or (iii) 
any case in which collection of the 
type of debt involved by administra- 
tive offset is explicitly provided for or 
prohibited by another statute. Howev- 
er, unless otherwise provided by con- 
tract or law, debts or payments which 
are not subject to administrative 
offset under 31 U.S.C. 3716 may be col- 
lected by administrative offset under 
the common law or other applicable 
statutory authority. 

(5) Agencies may effect administra- 
tive offset against a payment to be 
made to a debtor prior to the comple- 
tion of the procedures required by 
paragraph (b)(2) of this section if: (i) 
Failure to take the offset would sub- 
stantially prejudice the Government's 
ability to collect the debt, and (ii) the 
time before the payment is to be made 
does not reasonably permit the com- 
pletion of those procedures. Such 
prior offset must be promptly followed 
by the completion of those procedures. 
Amounts recovered by offset but later 
found not to be owed to the Govern- 
ment shall be promptly refunded. 

(c) Type of hearing or review: (1) 
For purposes of this section, whenever 
an agency is required to afford a 
debtor with a hearing or review within 
the agency, the agency shall provide 
the debtor with a reasonable opportu- 
nity for an oral hearing when: (i) An 
applicable statute authorizes or re- 
quires the agency to consider waiver of 
the indebtedness involved, the debtor 
requests waiver of the indebtedness, 
and the waiver determination turns on 
an issue of credibility or veracity; or 
(ii) the debtor requests reconsider- 
ation of the debt and the agency de- 
termines that the question of the in- 
debtedness cannot be resolved by 
review of the documentary evidence, 
for example, when the validity of the 
debt turns on an issue of credibility or 



veracity. Unless otherwise required by 
law, an oral hearing under this section 
is not required to be a formal eviden- 
tiary-type hearing, although the 
agency should always carefully docu- 
ment all significant matters discussed 
at the hearing. 

(2) This section does not require an 
oral hearing with respect to debt col- 
lection systems in which determina- 
tions of indebtedness or waiver rarely 
involve issues of credibility or veracity 
and the agency has determined that 
review of the written record is ordinar- 
ily an adequate means to correct prior 
mistakes. In administering such a 
system, the agency is not required to 
sift through all of the requests re- 
ceived in order to accord oral hearings 
in those few cases which may involve 
issues of credibility or veracity. 

(3) In those cases where an oral 
hearing is not required by this section, 
the agency shall nevertheless accord 
the debtor a "paper hearing," that is. 
the agency will make its determination 
on the request for waiver or reconsid- 
eration based upon a review of the 
written record. 

(d) Appropriate use should be made 
of the cooperative efforts of other 
agencies in effecting collection by ad- 
ministrative offset, including use of 
the Army Holdup List. Generally, 
agencies should not refuse to comply 
with requests from other agencies to 
initiate administrative offset to collect 
debts owed to the United States, 
unless the requesting agency has not 
complied with the applicable provi- 
sions of these standards or the offset 
would be otherwise contrary to law. 

(e) Collection by offset against a 
judgment obtained by a debtor against 
the United States shall be accom- 
plished in accordance with 31 U.S.C. 
3728. 

(f) Whenever the creditor agency is 
not the agency which is responsible 
for making the payment against which 
administrative offset is sought, the 
latter agency shall not initiate the re- 
quested offset until it has been provid- 
ed by the creditor agency with an ap- 
propriate written certification that 
the debtor owes a debt (including the 
amount) and that the provisions of 
this section have been fully complied 
with. 



106 



Federal Claims Collection Standards 



311 



Federal Claims Collection Standards 

(g) When collecting multiple debts 
by administrative offset, agencies 
should apply the recovered amounts 
to those debts in accordance with the 
best interests of the United States, as 
determined by the facts and circum- 
stances of the particular case, paying 
special attention to applicable statutes 
of limitations. 

§ 102.4 Administrative offset against 
amounts payable from Civil Service 
Retirement and Disability Fund. 

(a) Unless otherwise prohibited by 
law. agencies may request that moneys 
which are due and payable to a debtor 
from the Civil Service Retirement and 
Disability Fund be administratively 
offset in reasonable amounts in order 
to collect in one full payment or a 
minimal number of payments debts 
owed to the United States by the 
debtor. Such requests shall be made to 
the appropriate officials of the Office 
of Personnel Management in accord- 
ance with such regulations as may be 
prescribed by the Director of that 
Office. 

(b) When making a request for ad- 
ministrative offset under paragraph 
(a) of this section, an agency shall in- 
clude a written certification that: 

(1) The debtor owes the United 
States a debt, including the amount of 
the debt: 

(2) The requesting agency has com- 
plied with the applicable statutes, reg- 
ulations, and procedures of the Office 
of Personnel Management: and 

(3) The requesting agency has com- 
plied with the requirements of $ 102.3 
of this part, including any required 
hearing or review. 

(c) Once an agency decides to re- 
quest administrative offset under 
paragraph (a) of this section, it should 
make the request as soon as practical 
after completion of the applicable pro- 
cedures in order that the Office of 
Personnel Management may identify 
and "flag" the debtor's account in an- 
ticipation of the time when the debtor 
requests or becomes eligible to receive 
payments from the Fund. This will 
satisfy any requirement that offset be 
initiated prior to expiration of the ap- 
plicable statute of limitations. At such 
time as the debtor makes a claim for 
payments from the Fund, if at least a 



§102.6 

year has elapsed since the offset re- 
quest was originally made, the debtor 
should be permitted to offer a satisfac- 
tory repayment plan in lieu of offset 
upon establishing that changed finan- 
cial circumstances would render the 
offset unjust. 

(d) If the requesting agency collects 
part or all of the debt by other means 
before deductions are made or com- 
pleted pursuant to paragraph (a) of 
this section, the agency shall act 
promptly to modify or terminate its 
request for offset under paragraph (a) 
of this section. 

(e) This section does not require or 
authorize the Office of Personnel 
Management to review the merits of 
the requesting agency's determination 
with respect to the amount and validi- 
ty of the debt, its determination as to 
waiver under an applicable statute, or 
its determination to provide or not 
provide an oral hearing. 

§ 102.5 Use of consumer reporting agen- 
cies. 

(a) Agencies shall develop and imple- 
ment procedures for reporting delin- 
quent debts to consumer reporting 
agencies. For purposes of this section, 
the term "consumer reporting agency" 
has the meaning provided in 31 U.S.C. 
3701(a)(3). 

(b) In developing procedures under 
paragraph (a) of this section, agencies 
must have due regard for compliance 
with the Privacy Act of 1974. as 
amended. 5 U.S.C. 552a. However, con- 
sumer reporting agencies themselves 
are not subject to the Privacy Act. 

(c) Agency procedures developed 
under paragraph (a) of this section 
shall be consistent with the require- 
ments of 31 U.S.C. 3711(f) and 
§ 102.3(c) of this part. 

§ 102.6 Contracting for collection services. 

(a) All agencies have authority to 
contract for collection services to re- 
cover delinquent debts, provided that 
the following conditions are satisfied: 

(1) The authority to resolve dis- 
putes, compromise claims, suspend or 
terminate collection action, and refer 
the matter for litigation (§ 105.1) must 
be retained by the agency: 



B 



107 



312 



Claims and Debt Collection Acts Appendix 



B 



§102.7 

(2) The contractor shall be subject 
to the Privacy Act of 1974. as amend- 
ed, to the extent specified in 5 U.S.C. 
552a(m), and to applicable Federal and 
State laws and regulations pertaining 
to debt collection practices, such as 
the Fair Debt Collection Practices Act. 
15 U.S.C. 1692: 

(3) The contractor must be required 
to account strictly for all amounts col- 
lected; and 

(4) The contractor must agree to 
provide any data contained in its files 
relating to § 105.2(a) (1), (2), and (3) of 
this chapter upon returning an ac- 
count to the creditor agency for subse- 
quent referral to the Department of 
Justice for litigation. 

(b) Poinding of collection service con- 
tracts: 

(1) An agency may fund a collection 
service contract on a fixed-fee basis, 
that is. payment of a fixed fee deter- 
mined without regard to the amount 
actually collected under the contract. 
Payment of the fee under this type of 
contract must be charged to available 
agency appropriations. 

(2) An agency may also fund a col- 
lection service contract on a contin- 
gent-fee basis, that is, by including a 
provision in the contract permitting 
the contractor to deduct its fee from 
amounts collected under the contract. 
The fee should be based on a percent- 
age of the amount collected, consist- 
ent with prevailing commercial prac- 
tice. 

(3) An agency may enter into a con- 
tract under paragraph (b)(1) of this 
section only if and to the extent pro- 
vided in advance in its appropriation 
act or other legislation, except that 
this requirement does not apply to the 
use of a revolving fund authorized by 
statute. 

(4) Except as authorized under par- 
graph (b)(2) of this section, or unless 
otherwise specifically provided by law. 
agencies must deposit all amounts re- 
covered under collection service con- 
tracts (or by agency employees on 
behalf of the agency) in the Treasury 
as miscellaneous receipts pursuant to 
31 U.S.C. 3302. 

§ 102.7 Personal interview with debtor. 

Agencies will undertake personal 
interviews with their debtors when- 



4 CFR Ch. II (1-1-91 Edition) 

ever this is feasible, having regard for 
the amounts involved and the proximi- 
ty of agency representatives to such 
debtors. 

§ 102.8 Contact with debtor's employing 
agency. 

When a debtor is employed by the 
Federal Government or is a member of 
the military establishment or the 
Coast Guard, and collection by offset 
cannot be accomplished in accordance 
with 5 U.S.C. 5514, the employing 
agency will be contacted for the pur- 
pose of arranging with the debtor for 
payment of the indebtedness by allot- 
ment or otherwise in accordance with 
section 206 of Executive Order 11222, 
May 8, 1965. 30 FR 6469. 

§ 102.9 Suspension or revocation or li- 
cense or eligibility. 

Agencies seeking the collection of 
statutory penalties, forfeitures, or 
debts provided for as an enforcement 
aid or for compelling compliance 
should give serious consideration to 
the suspension or revocation of li- 
censes or other privileges for any inex- 
cusable, prolonged or repeated failure 
of a debtor to pay such a claim, and 
the debtor should be so advised. Any 
agency making, guaranteeing, insur- 
ing, acquiring, or participating in loans 
should give serious consideration to 
suspending or disqualifying any 
lender, contractor, broker, borrower or 
other debtor from doing further busi- 
ness with it or engaging in programs 
sponsored by it if such a debtor fails 
to pay its debts to the Government 
within a reasonable time, and the 
debtor should be so advised. The fail- 
ure of any surety to honor its obliga- 
tions in accordance with 31 U.S.C. 
9305 is to be reported to the Treasury 
Department at once. Notification that 
a surety's certificate of authority to do 
business with the Federal Government 
has been revoked or forfeited by the 
Treasury Department will be forward- 
ed by that Department to all interest- 
ed agencies. 

§ 102.10 Liquidation of collateral. 

An agency holding security or collat- 
eral which may be liquidated and the 
proceeds applied on debts due it 



108 



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313 



Federal Claims Collection Standards 



§102.13 



through the exercise of a power of 
sale in the security instrument or a 
nonjudicial foreclosure should do so 
by such procedures if the debtor fails 
to pay the debt within a reasonable 
time after demand, unless the cost of 
disposing of the collateral will be dis- 
proportionate to its value or special 
circumstances require judicial foreclo- 
sure. The agency should provide the 
debtor with reasonable notice of the 
sale, an accounting of any surplus pro- 
ceeds, and any other procedures re- 
quired by contract or law. Collection 
from other sources, including liquida- 
tion of security or collateral, is not a 
prerequisite to requiring payment by a 
surety or insurance concern unless 
such action is expressly required by 
statute or contract, 

§ 102.11 Collection in installments. 

(a) Whenever feasible, and except as 
otherwise provided by law. debts owed 
to the United States, together with in- 
terest, penalties, and administrative 
costs as required by § 102.13 of this 
part, should be collected in full in one 
lump sum. This is true whether the 
debt is being collected by administra- 
tive offset or by another method, in- 
cluding voluntary payment. However, 
if the debtor is financially unable to 
pay the indebtedness in one lump sum. 
payment may be accepted in regular 
installments. Agencies should obtain 
financial statements from debtors who 
represent that they are unable to pay 
the debt in one lump sum. Agencies 
which agree to accept payment in reg- 
ular installments should obtain a le- 
gally enforceable written agreement 
from the debtor which specifies all of 
the terms of the arrangement and 
which contains a provision accelerat- 
ing the debt in the event the debtor 
defaults. The size and frequency of in- 
stallment payments should bear a rea- 
sonable relation to the size of the debt 
and the debtor's ability to pay. If pos- 
sible, the installment payments should 
be sufficient in size and frequency to 
liquidate the Government's claim in 
not more than 3 years. Installment 
payments of less than $50 per month 
should be accepted only if justifiable 
on the grounds of financial hardship 
or for some other reasonable cause. An 
agency holding an unsecured claim for 



administrative collection should at- 
tempt to obtain an executed confess- 
judgment note, comparable to the De- 
partment of Justice Form USA-70a, 
from a debtor when the total amount 
of the deferred installments will 
exceed $750. Such notes may be 
sought when an unsecured obligation 
of a lesser amount is involved. When 
attempting to obtain confess- judgment 
notes, agencies should provide their 
debtors with written explanation of 
the consequences of signing the note, 
and should maintain documentation 
sufficient to demonstrate that the 
debtor has signed the note knowingly 
and voluntarily. Security for deferred 
payments other than a confess-judg- 
ment note may be accepted in appro- 
priate cases. An agency may accept in- 
stallment payments notwithstanding 
the refusal of a debtor to execute a 
conf ess-judgment note or to give other 
security, at the agency's option. 

(b) If the debtor owes more than one 
debt and designates how a voluntary 
installment payment is to be applied 
as among those debts, that designation 
must be followed. If the debtor does 
not designate the application of the 
payment, agencies should apply pay- 
ments to the various debts in accord- 
ance with the best interests of the 
United States, as determined by the 
facts and circumstances of the particu- 
lar case, paying special attention to 
applicable statues of limitations. 

§ 102.12 Exploration of compromise. 

Agencies may attempt to effect com- 
promise, preferably during the course 
of personal interviews, in accordance 
with the standards set forth in Part 
103 of this chapter. 

§ 102.13 Interest, penalties, and adminis- 
trative costs. 

(a) Except as provided in paragraphs 
(h) and (i) of this section, agencies 
shall assess interest, penalties, and ad- 
ministrative costs on debts owed to the 
United States pursuant to 31 U.S.C. 
3717. Before assessing these charges, 
an agency must mail or hand-deliver a 
written notice to the debtor explaining 
the agency's requirements concerning 
the charges. (See § 102.2 of this part.) 



i 



109 



314 



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§ 102.13 



4 CFR Ch. II (1-1-91 Edition) 



B 



(b) Interest shall accrue from the 
date on which notice of the debt and 
the interest requirements is first 
mailed or hand-delivered to the debtor 
(on or after October 25, 1982). using 
the most current address that is avail- 
able to the agency. If an agency uses 
an "advance billing" procedure— that 
is. if it mails a bill before the debt is 
actually owed— it can include the re- 
quired interest notification in the ad- 
vance billing, but interest may not 
start to accrue before the debt is actu- 
ally owed. Agencies should exercise 
care to insure that the notices re- 
quired by this section are dated and 
mailed or hand-delivered on the same 
day. 

(c) The rate of interest assessed 
shall be the rate of the current value 
of funds to the U.S. Treasury (ie.. the 
Treasury tax and loan account rate), 
as prescribed and published by the 
Secretary of the Treasury in the Fed- 
eral Register and the Treasury Fiscal 
Requirements Manual Bulletins annu- 
ally or quarterly, in accordance with 
31 U.S.C. 3717. An agency may assess a 
higher rate of interest if it reasonably 
determines that a higher rate is neces- 
sary to protect the interests of the 
United States. The rate of interest, as 
initially assessed, shall remain fixed 
for the duration of the indebtedness, 
except that where a debtor has de- 
faulted on a repayment agreement and 
seeks to enter into a new agreement, 
the agency may set a new interest rate 
which reflects the current value of 
funds to the Treasury at the time the 
new agreement is executed. Interest 
should not be assessed on interest, 
penalties, or administrative costs re- 
quired by this section. However, if the 
debtor defaults on a previous repay- 
ment agreement, charges which ac- 
crued but were not collected under the 
defaulted agreement shall be added to 
the principal to be paid under a new 
repayment agreement. 

(d) An agency shall assess against a 
debtor charges to cover administrative 
costs incurred as a result of a delin- 
quent debt.— that is. the additional 
costs incurred in processing and han- 
dling the debt because it became delin- 
quent as defined in § 101.2(b) of this 
chapter. Calculation of administrative 
costs should be based upon actual 



costs incurred or upon cost analyses 
establishing an average of actual addi- 
tional costs incurred by the agency in 
processing and handling claims against 
other debtors in similar stages of de- 
linquency. Administrative costs may 
include costs incurred in obtaining a 
credit report or in using a private debt 
collector, to the extent they are attrib- 
utable to delinquency. 

(e) An agency shall assess a penalty 
charge, not to exceed 6 percent a year, 
on any portion of a debt that is delin- 
quent as defined in § 101.2(b) of this 
chapter for more than 90 days. This 
charge need not be calculated until 
the 91st day of delinquency, but shall 
accrue from the date that the debt 
became delinquent. 

(f) When a debt is paid in partial or 
installment payments, amounts re- 
ceived by the agency shall be applied 
first to outstanding penalty and ad- 
ministrative cost charges, second to ac- 
crued interest, and third to outstand- 
ing principal. 

(g) An agency shall waive the collec- 
tion of interest on the debt or any por- 
tion of the debt which is paid within 
30 days after the date on which inter- 
est began to accrue. An agency may 
extend this 30-day period, on a case- 
by-case basis, if it reasonably deter- 
mines that such action is appropriate. 
Also, an agency may waive, in whole or 
in part, the collection of interest, pen- 
alties, and/or administrative costs as- 
sessed under this section under the 
criteria specified in Part 103 of this 
chapter relating to the compromise of 
claims (without regard to the amount 
of the debt), or if the agency deter- 
mines that collection of these charges 
would be against equity and good con- 
science or not in the best interests of 
the United States. Waiver under the 
first sentence of this paragraph (g) is 
mandatory. Under the second and 
third sentences, it may be exercised 
only in accordance with regulations 
issued by the agency identifying the 
standards and appropriate circum- 
stances for waiver. Examples of situa- 
tions which agencies may consider in- 
cluding in their interest waiver regula- 
tions are: (1) Waiver of interest pend- 
ing consideration of a request for re- 
consideration, administrative review, 
or waiver of the underlying debt under 



110 



Federal Claims Collection Standards 



315 



Federal Claims Collection Standards 



§102.18 



a permissive statute, and (2) waiver of 
interest where the agency has accept- 
ed an installment plan under § 102.11 
of this part, there is no indication of 
fault or lack of good faith on the part 
of the debtor, and the amount of in- 
terest is large enough in relation to 
the size of the installments that the 
debtor can reasonably afford to pay 
that the debt will never be repaid. 

(h) Where a mandatory waiver or 
review statute applies, interest and re- 
lated charges may not be assessed for 
those periods during which collection 
action must be suspended under 
§ 104.2(c)(1) of this chapter. 

(i) Exemptions. (1) The provisions of 
31 U.S.C. 3717 do not apply: (i) To 
debts owed by any State or local gov- 
ernment: 

(ii) To debts arising under contracts 
which were executed prior to, and 
were in effect on (i.e., were not com- 
pleted as of). October 25, 1982: 

(iii) To debts where an applicable 
statute, regulation required by statute, 
loan agreement, or contract either 
prohibits such charges or explicitly 
fixes the charges that apply to the 
debts involved; or 

(iv) To debts arising under the Social 
Security Act. the Internal Revenue 
Code of 1954. or the tariff laws of the 
United States. 

(2) However, agencies are authorized 
to assess interest and related charges 
on debts which are not subject to 31 
U.S.C. 3717 to the extent authorized 
under the common law or other appli- 
cable statutory authority. 

§ 102.14 Analysis of costs. 

Agency collection procedures should 
provide for periodic comparison of 
costs incurred and amounts collected. 
Data on costs and corresponding re- 
covery rates for debts of different 
types and in various dollar ranges 
should be used to compare the cost ef- 
fectiveness of alternative collection 
techniques, establish guidelines with 
respect to points at which costs of fur- 
ther collection efforts are likely to 
exceed recoveries, assist in evaluating 
offers in compromise, and establish 
minimum debt amounts below which 
collection efforts need not be taken. 
Cost and recovery data should also be 
useful in justifying adequate resources 



for an effective collection program, 
evaluating the feasibility and cost ef- 
fectiveness of contracting for debt col- 
lection services under § 102.6. and de- 
termining appropriate charges for ad- 
ministrative costs under § 102.13(d). 

§ 102.15 Documentation of administrative 
collection action. 

All administrative collection action 
shall be documented and the bases for 
compromise, or for termination or sus- 
pension of collection action, should be 
set out in detail. Such documentation 
shall be retained in the appropriate 
claims file. 

§ 102.16 Automation. 

Agencies should automate their debt 
collection operations to the extent it is 
cost effective and feasible. 

§ 102.17 Prevention of overpayments, de- 
linquencies, and defaults. 

Agencies should establish procedures 
to identify the causes of overpay- 
ments, delinquencies, and defaults and 
the corrective actions needed. 

§ 102.18 Use and disclosure of mailing ad- 
dresses. 

(a) When attempting to locate a 
debtor in order to collect or compro- 
mise a debt under this chapter, an 
agency may send a written request to 
the Secretary of the Treasury (or des- 
ignee) in order to obtain a debtor's 
mailing address from the records of 
the Internal Revenue Service. 

(b) An agency may disclose a mailing 
address obtained under paragraph (a) 
of this section to other agents, includ- 
ing collection service contractors, in 
order to facilitate the collection or 
compromise of debts under this chap- 
ter, except that a mailing address may 
be disclosed to a consumer reporting 
agency only for the limited purpose of 
obtaining a commercial credit report 
on the particular taxpayer. 

(c) Each agency shall ensure, by ap- 
propriate regulations and contract ad- 
ministration, that the agency and its 
agents, including consumer reporting 
agencies and collection service con- 
tractors, comply with the provisions of 
26 U.S.C. 6103(p)(4) and applicable 



B 



111 



316 



Claims and Debt Collection Acts Appendix 



a 



§102.19 

regulations of the Internal Revenue 
Service. 

§ 102.19 Exemptions. 

(a) The preceding sections of this 
part, to the extent they reflect reme- 
dies or procedures prescribed by the 
Debt Collection Act of 1982, such as 
administrative offset (§§ 102.3 and 
102.4), use of consumer reporting 
agencies (§ 102.5). contracting for col- 
lection services (§ 102.6), and interest 
and related charges (§ 102.13), do not 
apply to debts arising under or pay- 
ments made under the Internal Reve- 
nue Code of 1954, as amended (26 
U.S.C. 1 et seg.), the Social Security 
Act (42 U.S.C. 301 et seq.). or the tariff 
laws of the United States. However, 
these remedies and procedures may 
still be authorized with respect to 
debts which are exempt from the pur- 
view of the Debt Collection Act of 
1982, to the extent that they are au- 
thorized under some other statute or 
the common law. 

(b) This section should not be con- 
strued as prohibiting use of these au- 
thorities or requirements when collect- 
ing debts owed by persons employed 
by agencies administering the laws 
cited in the preceding paragraph 
unless the debt "arose under" those 
laws. 

§ 102.20 Additional administrative collec- 
tion action. 

Nothing contained in this chapter is 
intended to preclude the utilization of 
any other administrative remedy 
which may be available. 

PART 103— STANDARDS FOR THE 
COMPROMISE OF CLAIMS 

Sec. 

103.1 Scope and application. 

103.2 Inability to pay. 

103.3 Litigative probabilities. 

103.4 Cost of collecting claim. 

103.5 Enforcement policy. 

103.6 Joint and several liability. 

103.7 Compromise for a combination of 
reasons. 

103.8 Further review of compromise offers. 

103.9 Restrictions. 

Authority: 31 U.S.C. 3711. 
Source: 49 FR 8902. Mar. 9. 1984, unless 
otherwise noted. 



4 CFR Ch. II (1-1-91 Edition) 

§ 103.1 Scope and application. 

(a) The standards set forth in this 
part apply to the compromise of 
claims pursuant to 31 U.S.C. 3711. The 
head of an agency may exercise such 
compromise authority with respect to 
claims for money or property arising 
out of the activities of that agency 
where the claim, exclusive of interest, 
penalties, and administrative costs, 
does not exceed $20,000. prior to the 
referral of such claims to the General 
Accounting Office, or to the Depart- 
ment of Justice for litigation. The 
Comptroller General may exercise 
such compromise authority with re- 
spect to claims referred to th^ General 
Accounting Office prior to their fur- 
ther referral for litigation. Only the 
Comptroller General may effect the 
compromise of a claim that arises out 
of an exception made by the General 
Accounting Office in the account of an 
accountable officer, including a claim 
against the payee, prior to its referral 
by that Office for litigation. Agency 
heads, including the Comptroller Gen- 
eral, may designate officials within 
their respective agencies to exercise 
the authorities referred to in this sec- 
tion. 

(b) When the claim, exclusive of in- 
terest, penalties, and administrative 
costs, exceeds $20,000, the authority to 
accept the compromise rests solely 
with the Department of Justice. The 
agency should evaluate the offer, 
using the factors set forth in this part. 
If the agency then wishes to accept 
the compromise, it must refer the 
matter to the Department of Justice, 
using the Claims Collection Litigation 
Report. See 4 CFR 105.2(b). Claims for 
which the gross amount is over 
$100,000 shall be referred to the Com- 
mercial Litigation Branch. Civil Divi- 
sion. Department of Justice, Washing- 
ton, D.C. 20530. Claims for which the 
gross original amount is $100,000 or 
less shall be referred to the United 
States Attorney in whose Judicial dis- 
trict the debtor can be found. The re- 
ferral should specify the reasons for 
the agency's recommendation. Justice 
Department approval is not required if 
the agency wishes to reject the com- 
promise offer. 



112 



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317 



Federal Claims Collection Standards 

§ 103.2 Inability to pay. 

(a) A claim may be compromised 
pursuant to this part if the Govern- 
ment cannot collect the full amount 
because of: (1) The debtor's inability 
to pay the full amount within a rea- 
sonable time, or (2) the refusal of the 
debtor to pay the claim in full and the 
Government's inability to enforce col- 
lection in full within a reasonable time 
by enforced collection proceedings. 

(b) In determining the debtor's in- 
ability to pay. the following factors, 
among others, may be considered: 

(1) Age and health of the debtor; 

(2) Present and potential income; 

(3) Inheritance prospects; 

(4) The possibility that assets have 
been concealed or improperly trans- 
ferred by the debtor; and 

(5) The availability of assets or 
income which may be realized by en- 
forced collection proceedings. 

(c) The agency should give consider- 
ation to the applicable exemptions 
available to the debtor under State 
and Federal law in determining the 
Government's ability to enforce collec- 
tion. Uncertainty as to the price which 
collateral or other property will bring 
at forced sale may properly be consid- 
ered in determining the Government's 
ability to enforce collection. A compro- 
mise effected under this section 
should be for an amount which bears a 
reasonable relation to the amount 
which can be recovered by enforced 
collection procedures, having regard 
for the exemptions available to the 
debtor and the time which collection 
will take. 

(d) Compromises payable in install- 
ments are to be discouraged. However, 
if payment of a compromise by install- 
ments is necessary, a legally enforcea- 
ble agreement for the reinstatement 
of the prior indebtedness less sums 
paid thereon and acceleration of the 
balance due upon default in the pay- 
ment of any installment should be ob- 
tained, together with security in the 
manner set forth in § 102.11 of this 
chapter, in every case in which this is 
possible. 

(e) If the agency's files do not con- 
Uin reasonably up-to-date credit infor- 
mation as a basis for assessing a com- 
P.'omise proposal, such information 
may be obtained from the individual 



§ 103.4 

debtor by obtaining a statement exe- 
cuted under penalty of perjury show- 
ing the debtor's assets and liabilities, 
income and expenses. Forms such as 
Department of Justice Form OBD-500 
or OBD-500B may be used for this 
purpose. Similar data may be obtained 
from corporate debtors using a form 
such as Department of Justice Form 
OBD-500C or by resort to balance 
sheets and such additional data as 
seems required. 

§ 103.3 Litigative probabilities. 

A claim may be compromised pursu- 
ant to this part if there is a real doubt 
concerning the Government's ability 
to prove its case in court for the full 
amount claimed, either because of the 
legal issues involved or a bona fide dis- 
pute as to the facts. The amount ac- 
cepted in compromise in such cases 
should fairly reflect the probability of 
prevailing on the legal question in- 
volved, the probabilities with respect 
to full or partial recovery of a judg- 
ment, paying due regard to the avail- 
ability of witnesses and other eviden- 
tiary support for the Government 
claim, and related pragmatic consider- 
ations. In determining the litigative 
risks involved, proportionate weight 
should be given to the probable 
amount of court costs and attorney 
fees pursuant to the Equal Access to 
Justice Act which may be assessed 
against the Government if it is unsuc- 
cessful in litigation. See 28 U.S.C. 
2412. 

§ 103.4 Cost of collecting claim. 

A claim may be compromised pursu- 
ant to this part if the cost of collecting 
the claim does not justify the enforced 
collection of the full amount. The 
amount accepted in compromise in 
such cases may reflect an appropriate 
discount for the administrative and li- 
tigative costs of collection, paying 
heed to the time which it will take to 
effect collection. Costs of collecting 
may be a substantial factor in the set- 
tlement of small claims, but normally 
will not carry great weight in the set- 
tlement of large claims. In determin- 
ing whether the cost of collecting Jus- 
tifies enforced collection of the full 
amount, it is legitimate to consider the 



D 



113 



318 



Claims and Debt Collection Acts Appendix 



I 



§103^ 

positive effect that enforced collection 
of some claims may have on the collec- 
tion of other claims. Since debtors are 
more likely to pay when first request- 
ed to do so if an agency has a policy of 
vigorous collection of all claims, the 
fact that the cost of collection of any 
one claim may exceed the amount of 
the claim does not necessarily mean 
that the claim should be compromised. 
The practical benefits of vigorous col- 
lection of a small claim may include a 
demonstration to other debtors that 
resistance to payment is not likely to 
succeed. 

§ 103.5 Enforcement policy. 

Statutory penalties, forfeitures, or 
debts established as an aid to enforce- 
ment and to compel compliance may 
be compromised pursuant to this part 
if the agency's enforcement policy in 
terms of deterrence and securing com- 
pliance, both present and future, will 
be adequately served by acceptance of 
the sum to be agreed upon. Mere acci- 
dential or technical violations may be 
dealt with less severely than willful 
and substantial violations. 

§ 103.6 Joint and several liability. 

When two or more debtors are joint- 
ly and severally liable, collection 
action will not be withheld against one 
such debtor until the other or others 
pay their proportionate shares. The 
agency should not attempt to allocate 
the burden of paying such claims as 
between the debtors but should pro- 
ceed to liquidate the indebtedness as 
quickly as possible. Care should be 
taken that a compromise agreement 
with one such debtor does not release 
the agency's claim against the remain- 
ing debtors. The amount of a compro- 
mise with one such debtor shall not be 
considered a precedent or as morally 
binding in determining the amount 
which will be required from other 
debtors jointly and severally liable on 
the claim. 

§ 103.7 Compromise for a combination of 
reasons. 

A claim may be compromised for one 
or for more than one of the reasons 
authorized in this part. 



4 CFR Ch. II (1.1-91 Edition) 

§ 103.8 Further review of compromise 
offers. 

If an agency holds a debtor's firm 
written offer of compromise which is 
substantial in amount and the agency 
is uncertain as to whether the offer 
should be accepted, it may refer the 
offer, the supporting data, and par- 
ticulars concerning the claim to the 
General Accounting Office or to the 
Department of Justice. The General 
Accounting Office or the Department 
of Justice may act upon such an offer 
or return it to the agency with instruc- 
tions or advice. 

§ 103.9 Restrictions. 

Neither a percentage of a debtor's 
profits nor stock in a debtor corpora- 
tion will be accepted in compromise of 
a claim. In negotiating a compromise 
with a business concern, consideration 
should be given to requiring a waiver 
of the tax -loss-carry-forward and tax- 
loss-carry-back rights of the debtor. 

PART 104— STANDARDS FOR SUS- 
PENDING OR TERMINATING COL- 
LECTION ACTION 



Sec. 

104.1 

104.2 

104.3 

104.4 



Scope and application. 
Suspension of collection activity. 
Termination of collection activity. 
Transfer of claims. 



Authority: 31 U.S.C. 3711(a)(3). 

Source: 49 PR 8903, Mar. 9. 1984, unless 
otherwise noted. 

§ 104.1 Scope and application. 

(a) The standards set forth in this 
part apply to the suspension or termi- 
nation of collection action pursuant to 
31 U.S.C. 3711(a)(3) on claims which 
do not exceed $20,000, exclusive of in- 
terest, penalties, and administrative 
costs, after deducting the amount of 
partial payments or collections. If any. 
The head of an agency (or designee) 
may suspend or terminate collection 
action under this part with respect to 
claims for money or property arising 
out of activities of that agency prior to 
the referral of such claims to the Gen- 
eral Accounting Office or to the De- 
partment of Justice for litigation. The 
Comptroller General (or designee) 



114 



Federal Claims Collection Standards 



319 



Federal Claims Collection Standards 

niay exercise such authority with re- 
spect to claims referred to the General 
Accounting Office prior to their fur- 
ther referral for litigation. 

(b) If. after deducting the amount of 
partial payments or collections, if any, 
a claim exceeds $20,000, exclusive of 
interest, penalties, and administrative 
costs, the authority to suspend or ter- 
minate rests solely with the Depart- 
ment of Justice. If the agency thinks 
suspension or termination may be ap- 
propriate, it should evaluate the 
matter, using the factors set forth In 
this part, if the agency then concludes 
that suspension or termination is ap- 
propriate, it must refer the matter to 
the Department of Justice, using the 
Claims Collection Litigation Report. 
See 4 CFR 105.2(b). The referral 
should specify the reasons for the 
agency's recommendation. If the 
agency decides not to suspend or ter- 
minate collection action on the claim. 
Justice Department approval is not re- 
quired. If an agency determines that 
its claim is plainly erroneous or clearly 
without legal merit, it may terminate 
collection action regardless of the 
amount involved, without the need for 
Department of Justice concurrence. 

§ 104.2 Suspension of collection activity. 

(a) Inability to locate debtor. Collec- 
tion action may be suspended tempo- 
rarily on a claim when the debtor 
cannot be located after diligent effort 
and there is reason to believe that 
future collection action may be suffi- 
ciently productive to justify periodic 
review and action on the claim, with 
due consideration for the size and 
amount which may be realized there- 
on. The following sources may be of 
assistance in locating missing debtors: 
Telephone directories: city directories: 
postmasters: drivers' license records: 
automobile title and registration 
records; state and local governmental 
agencies; the Internal Revenue Service 
(§ 102.18 of this chapter): other Feder- 
al agencies: employers, relatives, 
friends; credit agency skip locate re- 
ports, and credit bureaus. Suspension 
as to a particular debtor should not 
defer the early liquidation of security 
for the debt. Every reasonable effort 
should be made to locate missing debt- 
ors sufficiently in advance of the bar 



§104.2 

of the applicable statute of limita- 
tions, such as 28 U.S.C. 2415, to permit 
the timely filing of suit if such action 
is warranted. If the missing debtor has 
signed a confess- judgment note and is 
in default, referral of the note for the 
entry of judgment should not be de- 
layed because of the debtor's missing 
status. 

(b) Financial condition of debtor. 
Collection action may also be suspend- 
ed temporarily on a claim when the 
debtor owns no substantial equity in 
realty or personal property and is 
unable to make payments on the Gov- 
ernment's claim or effect a compro- 
mise at the time but the debtor's 
future prospects justify retention of 
the claim for periodic review and 
action, and: 

(1) The applicable statute of limita- 
tions has been tolled or started run- 
ning anew: or 

(2) Future collection can be effected 
by offset, notwithstanding the statute 
of limitations, with due regard to the 
10-year limitation prescribed by 31 
U.S.C. 3716(c)(1): or 

(3) The debtor agrees to pay interest 
on the amount of the debt on which 
collection action will be temporarily 
suspended, and such temporary sus- 
pension is likely to enhance the debt- 
or's ability to fully pay the principal 
amount of the debt with interest at a 
later date. 

(c) Request for waiver or administra- 
tive review. (1) If the statute under 
which waiver or administrative review 
is sought is "mandatory," that is, if It 
prohibits the agency from collecting 
the debt prior to the agency's consid- 
eration of the request for waiver or 
review (see Califano v. Yamasaki, 422 
U.S. 682 (1979)), then collection action 
must be suspended until either: (i) 
The agency has considered the request 
for waiver/ review, or (ii) the applica- 
ble time limit for making the waiver/ 
review request, as prescribed in the 
agency's regulations, has expired and 
the debtor, upon proper notice, has 
not made such a request. 

(2) If the applicable waiver/review 
statute is "permissive," that is, if it 
does not require all requests for 
waiver/review to be considered, and if 
it does not prohibit collection action 
pending consideration of a waiver/ 



B 



115 



320 



Claims and Debt Collection Acts Appendix 



a 



§104.3 

review request (for example. 5 U.S.C. 
5584), collection action may be sus- 
pended pending agency action on a 
waiver/review request based upon ap- 
propriate consideration, on a case-by- 
case basis, as to whether: 

(i) There is a reasonable possibility 
that waiver will be granted, or that 
the debt (in whole or in part) will be 
found not owing from the debtor; 

(ii) The Government's interests 
would be protected, if suspension were 
granted, by reasonable assurance that 
the debt could be recovered if the 
debtor does not prevail; and 

(iii) Collection of the debt will cause 
undue hardship. 

(3) If the applicable statutes and 
regulations would not authorize 
refund by the agency to the debtor of 
amounts collected prior to agency con- 
sideration of the debtors waiver/ 
review request in the event the agency 
acts favorably on it. collection action 
should ordinarily be suspended, with- 
out regard to the factors specified in 
paragraph (c)(2) of this section, unless 
it appears clear, based on the request 
and the surrounding circumstances, 
that the request is frivolous and was 
made primarily to delay collection. 

§ 104.3 Termination of collection activity. 

The head of an agency (or designee) 
may terminate collection activity and 
consider the agency's file on the claim 
closed under the following standards: 

(a) Inability to collect any substan- 
tial amount Collection action may be 
terminated on a claim when it be- 
comes clear that the Government 
cannot collect or enforce collection of 
any significant sum from the debtor, 
having due regard for the judicial rem- 
edies available to the Government, the 
debtor's future financial prospects, 
and the exemptions available to the 
debtor under State and Federal law. In 
determining the debtor's inability to 
pay, the following factors, among 
others, may be considered: Age and 
health of the debtor, present and po- 
tential income; inheritance prospects; 
the possibility that assets have been 
concealed or improperly transferred 
by the debtor; the availability of assets 
or income which may be realized by 
enforced collection proceedings. 



4CFR Ch. II (1-1-91 Edition) 

(b) Inability to locate debtor. Collec- 
tion action may be terminated on a 
claim when the debtor cannot be lo- 
cated, and either: (1) There is no secu- 
rity remaining to be liquidated, or (2) 
the applicable statute of limitations 
has run and the prospects of collecting 
by offset, notwithstanding the bar of 
the statute of limitations, are too 
remote to justify retention of the 
claim. 

(c) Cost will exceed recovery. Collec- 
tion action may be terminated on a 
claim when it is likely that the cost of 
further collection action will exceed 
the amount recoverable thereby. 

(d) Claim legally without merit. Col- 
lection action should be terminated 
immediately on a claim whenever it is 
determined that the claim is legally 
without merit. 

(e) Claim cannot be substantiated by 
evidence. Collection action should be 
terminated when it is determined that 
the evidence necessary to prove the 
claim cannot be produced or the neces- 
sary witnesses are unavailable and ef- 
forts to induce voluntary payment are 
unavailing. 

§104.4 Transfer of claims. 

When an agency has doubt as to 
whether collection action should be 
suspended or terminated on a claim, it 
may refer the claim to the General Ac- 
counting Office for advice. When a sig- 
nificant enforcement policy is involved 
in reducing a statutory penalty or for- 
feiture to judgment, or recovery of a 
judgment is a prerequisite to the im- 
position of administrative sanctions, 
such as the suspension or revocation 
of a license or the privilege of partici- 
pating in a Government sponsored 
program, an agency may refer such a 
claim for litigation even though termi- 
nation of collection activity might oth- 
erwise be given consideration under 
§ 104.3 (a) or (c). Claims on which an 
agency holds a judgment by assign- 
ment or otherwise will be referred to 
the Department of Justice for further 
action if renewal of the judgment lien 
or enforced collection proceedings are 
justified under the criteria discussed 
in this part, unless the agency con- 
cerned has statutory authority for 
handling its own litigation. 



116 



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321 



Federal Claims Collection Standards 



§ 105.2 



PART 1 0S—REFERRALS TO 
DEPARTMENT OF JUSTICE OR GAO 

Sec. 

105.1 Prompt referral. 

105.2 Claims collection litigation report. 

105.3 Preservation of evidence. 

105.4 Minimum amount of referrals to De- 
partment of Justice. 

105.5 Preliminary referrals to GAO. 

Authority: 31 U.S.C. 3711. 
Source: 49 FR 8904. Mar. 9. 1984. unless 
otherwise noted. 

§ 105.1 Prompt referral. 

(a) Except as provided in paragraphs 
(b) and (c) of this section, claims on 
which aggressive collection action has 
been taken in accordance with Part 
102 of this chapter and which cannot 
be compromised, or on which collec- 
tion action cannot be suspended or ter- 
minated, in accordance with Parts 103 
and 104 of this chapter, shall be 
promptly referred to the Department 
of Justice for litigation. Claims for 
which the gross original amount is 
over $100,000 shall be referred to the 
Commercial Litigation Branch, Civil 
Division, Department of Justice. 
Washington. D.C. 20530. Claims for 
which the gross original amount is 
$100,000 or less shall be referred to 
the U.S. Attorney in whose judicial 
district the debtor can be found. Re- 
ferrals should be made as early as pos- 
sible, consistent with aggressive 
agency collection action and the ob- 
servance of the regulations contained 
in this chapter, and in any event, well 
within the period for bringing a timely 
suit against the debtor. Ordinarily, re- 
ferrals should be made within one 
year of the agency's final determina- 
tion of the fact and the amount of the 
debt. 

(b) Claims arising from audit excep- 
tions taken by the General Accounting 
Office to payments made by agencies 
must be referred to the General Ac- 
counting Office for review and approv- 
al prior to referral to the Department 
of Justice for litigation, unless the 
agency concerned has been granted an 
exception by the General Accounting 
Office. 

(c) When the merits of the Govern- 
ment's claim, the amount owed on the 
claim, or the propriety of acceptance 



of a proposed compromise, suspension, 
or termination are in doubt, the 
agency concerned should refer the 
matter to the General Accounting 
Office for resolution and instructions 
prior to proceeding with collection 
action and/or referral to the Depart- 
ment of Justice for litigation. 

(d) Once a claim has been referred 
to GAO or to the Department of Jus- 
tice pursuant to this section, the refer- 
ring agency shall refrain from having 
any contact with the debtor and shall 
direct the debtor to GAO or the De- 
partment of Justice, as appropriate, 
when questions concerning the claim 
are raised by the debtor. GAO or the 
Department of Justice, as appropriate, 
shall be immediately notified by the 
referring agency of any payments 
which are received from the debtor 
subsequent to referral of a claim 
under this section. 

§ 105.2 Claims collection litigation report. 

(a) Unless an exception has been 
granted by the Department of Justice 
in consultation with the General Ac- 
counting Office, the Claims Collection 
Litigation Report (CCLR). which was 
officially implemented by the General 
Accounting Office on January 20, 
1983. shall be used with all referrals of 
administratively uncollectible claims 
made pursuant to § 105.1. As required 
by the CCLR, the following informa- 
tion shall be included. 

(1) Report of prior collection ac- 
tions. A checklist or brief sunmiary of 
the actions previously taken to collect 
or compromise the claim will be for- 
warded with the claim upon its refer- 
ral. If any of the administrative collec- 
tion actions enumerated in Part 102 of 
this chapter have been omitted, the 
reason for their omission must be pro- 
vided. GAO, the U.S. Attorney, or the 
Civil Division of the Department of 
Justice may return claims at their 
option when there is insufficient justi- 
fication for the omission of one or 
more of the administrative collection 
actions enumerated in Part 102 of this 
chapter. 

(2) Current address of debtor. The 
current address of the debtor, or the 
name and address of the agent for a 
corporation upon whom ser\'ice may 



B 



117 



322 



Claims and Debt Collection Acts Appendix 



a 



§ 105.3 

be made shall be provided. Reasonable 
and appropriate steps will be taken to 
locate missing parties in all cases. Re- 
ferrals to the Department of Justice 
for the institution of foreclosure or 
other proceedings, in which the cur- 
rent address of any party is unknown, 
will be accompanied by a listing of the 
prior known addresses of such party 
and a statement of the steps taken to 
locate that party. 

(3) Credit data. Reasonably current 
credit data indicating that there is a 
reasonable prospect of effecting en- 
forced collection from the debtor, 
having due regard for the exemptions 
available to the debtor under State 
and Federal law and the judicial reme- 
dies available to the Government, 
shall be included. 

(i) Such credit data may take the 
form of: 

(A) A commercial credit report; 

(B) An agency investigative report 
showing the debtor's assets, liabilities, 
income, and expenses: 

(C) The individual debtor's own fi- 
nancial statement executed under pen- 
alty of perjury reflecting the debtor's 
assets, liabilities, income, and ex- 
penses: or 

(D) An audited balance sheet of a 
corporate debtor. 

(ii) Such credit data may be omitted 
if: 

(A) A surety bond is available in an 
amount sufficient to satisfy the claim 
in full: 

(B) The forced sale value of the se- 
curity available for application to the 
Government's claim is sufficient to 
satisfy the claim in full: 

(C) The referring agency wishes to 
liquidate loan collateral through judi- 
cial foreclosure but does not desire a 
deficiency judgment: 

(D) The debtor is in bankruptcy or 
receivership: 

(E) The debtor's liability to the Gov- 
ernment is fully covered by insurance, 
in which case the agency will furnish 
such information as it can develop 
concerning the identity and address of 



4 CFR Ch. II (1.1-91 Edition) 

the insurer and the type and amount 
of insurance coverage: or 

(F) The nature of the debtor is such 
that credit data is not normally avail- 
able or cannot reasonably be obtained, 
for example, a unit of State or local 
government. 

(b) Agencies shall also use the CCLR 
when referring claims to the Depart- 
ment of Justice in order to obtain the 
approval of that Department with re- 
spect to compromise, suspension, or 
termination, as required by §§ 103.1(b) 
and 104.1(b). 

§ 105.3 Preservation of evidence. 

Care will be taken to preserve all 
files, records, and exhibits on claims 
referred or to be referred to the De- 
partment of Justice for litigation. 
Under no circumstances should origi- 
nal documents be sent to the Depart- 
ment of Justice or to the U.S. Attor- 
ney without specific prior approval to 
do so. Copies of relevant documents 
should be sent whenever necessary. 

§ 105.4 Minimum amount of referrals to 
Department of Justice. 

Agencies will not refer claims of less 
than $600. exclusive of interest, penal- 
ties, and administrative costs, for liti- 
gation unless: (a) Referral is impor- 
tant to a significant enforcement 
policy, or (b) the debtor not only has 
the clear ability to pay the claim but 
the Government can effectively en- 
force payment, having due regard for 
the exemptions available to the debtor 
under State and Federal law and the 
judicial remedies available to the Gov- 
ernment. 

§ 105.5 Preliminary referrals to GAO. 

Preliminary referrals of claims to 
the General Accounting Office, as re- 
quired by § 105.1(b) and (c). will be in 
accordance with instructions, includ- 
ing monetary limitations, contained in 
the General Accounting Office Policy 
and Procedures Manual for Guidance 
of Federal Agencies, and the provi- 
sions of §§ 105.2 and 105.3 of this part. 



118 



Pay Administration Standards 



323 



Office of Personnel Management 

Pay Administration Standards 

5 CFR §550-1 lOl.-l 108, 49 Fed. Reg. 27470 (July 3, 1984) 

51 Fed. Reg. 16670 (May 16, 1986), 

51 Fed. Reg. 21325 (June 12, 1986) 



office of Personnel Monogement 



Subpart K — Collection by Offset From 
Indebted Government Employees 

Aitthority: 5 U.S.C. 5514: sec. 8(1) of E.O 
11609: redesignated in sec. 2-1 of E.O. 12107. 

Source: 49 PR 27472. July 3. 1984. unless 
otherwise nolcd. 

iijmO.IIOI Purpoxe. 

This subpart provides the standards 
10 be used by Federal agencies to pre- 
pare regulations implementing 5 
VJS.C. 5514 and by OPM to review and 
approve such agency regulations, and 
establishes procedural guidelines to re- 
cover debts from the current pay ac- 
count of an employee when the em- 
ployee's creditor and paying agencies 
u-e not the same. 

§550.1102 Scope. 

(a) Coverage. This subpart applies to 
igencies and employees defined by 
J 550.1103. 

(b) Applicability. Thi.s subpart and 5 
U.S.C. 5514 apply in recovering certain 
debts by administrative offset, except 
where the employee consents to the 
recovery, from the current pay ac- 
count of an employee. Because ii is ati 
administrative offset, debt collection 
procedures for salary offset which arc 
not specified in 5 U.S.C. 5514 and 
these regulations should be consistent 
with the provisions of FCCS. 

(I) Excluded debts or claims. The 
procedures contained in this subpart 
<lo noL apply to debts or claims arisinp 



§550.1103 

under the Internal Revenue Code of 
1954 as amended (26 U^.C. I et se<3.). 
the Social Security Act (42 U.S.C. 301 
et scQ.). or the tariff laws of the 
United States: or to any case where 
collection of a debt by salary offset is 
explicity provided for or prohibited by 
another statute (e.g.. travel advances 
in 5 U.S.C. 5705 and employee training 
expenses in 5 U.S.C. 4108). 

(2) Waiver requests and claims to the 
General Accounting Office. This sub- 
part does not preclude an employee 
from requesting waiver of a salary 
overpayment under 5 U.S.C. 5584. 10 
U.S.C. 2774. or 32 D.S.C. 716. or In any 
way questioning the amount or validi- 
ty of a debt by submitting a subse- 
quent claim to the General Account- 
ing Office in accordance with proce- 
dures prescribed by the General Ac- 
counting Office. Similarly, in the case 
of other types of debts, it does not pre- 
clude an employee from requesting 
waiver, if waiver is available under any 
statutory provision pertaining to the 
particular debt being collected. 

§ 530. 11 03 Defl n i lions. 

For purposes of this subpart— 

Agency means (a) an Executive 
agency as defined in Section 105 of 
title 5. United States Code, including 
the U.S. Postal Service and the U.S. 
Postal Rate Commission: (b) a military 
department as defined in Section 102 
of title 5. United States Code: (c) an 
agency or court in the judicial branch, 
including a court as defined in Section 
610 of title 28. United SUtes Code, the 
District Court for the Northern Mari- 
ana Islands, and the Judicial Panel on 
Multidistrict Litigation: (d) an agency 
of the legislative branch, including the 
U.S. Senate and the U.S. House of 
Representatives: and (e) other inde- 
pendent establishments that are enti- 
ties of the Federal Government. 

Creditor agency means the agency to 
which the debt is owed. 

Debt means an amount owed to the 
United States from sources which in- 
clude loans insured or guaranteed by 
the United SUtcs and all other 
amounts due the United States from 
fees, leases, rents, royalties, services, 
sales of real or personal property. 
overpayments, penalties, damages, in- 



B 



435 



324 



Claims and Debt Collection Acts Appendix 



a 



§550.1104 

terest, fines and forfeitures (except 
those arising under the Uniform Code 
of Military Justice), and all other simi- 
lar sources. 

Disposable pay means that part of 
current basic pay. special pay. incen- 
tive pay. retired pay, retainer pay, or 
in the case of an employee not entitled 
to basic pay, other authorized pay re- 
maining after the deduction of any 
amount required by law to be with- 
held. Agencies must exclude deduc- 
tions described in 5 CFR 581.105 (b) 
through (f) to determine disposable 
pay subject to salary offset. 

Employee means a current employee 
of an agency, including a current 
member of the Armed Forces or a Re- 
serve of the Armed Forces (Reserves). 

FCCS means the Federal Qlaims Col- 
lection Standards jointly published by 
the Justice Department and the Gen- 
eral Accounting Office at 4 CFR 101.1 
et seq. 

Paying agency means the agency 
employing the individual and author- 
izing the payment of his or her cur- 
rent pay. 

Salary offset means an administra- 
tive offset to collect a debt under 5 
U.S.C. 5514 by deduction(s) at one or 
more officially established pay inter- 
vals from the current pay account of 
an employee without his or her con- 
sent. 

Waiver means the cancellation, re- 
mission, forgiveness, or non-recovery 
of a debt allegedly owed by an employ- 
ee to an agency as permitted or re- 
quired by 5 U.S.C. 5584. 10 U.S.C. 2774. 
or 32 U.S.C. 716. 5 U.S.C. 8346(b). or 
any other law. 

[49 FR 27472. July 3. 1984. as amended at 51 
FR 16670. May 6. 1986) 

§550.1104 Agency regrulations. 

Under this subpart and 5 U.S.C. 
5514, each creditor agency must issue 
regulations, subject to approval by the 
Office of Personnel Management 
(OPM). governing the collection of a 
debt by salary offset. Each agency is 
responsible for assuring that the regu- 
lations governing collection of internal 
debts are uniformly and consistently 
applied to all its employees. Agency 
regulations issued under authority of 
5 U.S.C. 5514 must contain the follow- 
ing minimum provisions: 



5 CFR Ch. I (1-1-91 Edition) 

(a) Applicability or scope. Indicaif 
whether regulations cover internal or 
Government-wide collections under '> 
U.S.C. 5514. or both. 

(b) Entitlement to notice, hearing. 
written responses and decisions. Iden- 
tify when the employee is entitled to 
notice, when hearings will be offered. 
when the employee is entitled to a re- 
sponse or decision after exercising his 
or her rights under § 5514 and this 
subpart, and if the hearing officials 
decision is not in the employee's favor 
or the employee chooses not to re- 
quest a hearing, what other rights and 
remedies are available under the stat- 
utes or regulations governing the pro- 
gram that requires the collection to be 
made. Except as provided in para- 
graph (c) of this section, each employ- 
ee from whom the creditor agency pro- 
poses to collect a debt under this sub- 
part is entitled to receive from the 
creditor agency— 

(DA written notice as described in 
paragraph (d) of this section; 

(2) The opportunity to petition for a 
hearing and. if a hearing is given, to 
receive a written decision from the of- 
ficial holding the hearing on the fol- 
lowing issues: 

(i) The determination of the creditor 
agency concerning the existence or 
amount of the debt; and 

(ii) The repayment schedule, if it 
was not established by written agree- 
ment between the employee and the 
creditor agency. 

(c) Exception to entitlement to 
notice, hearing, written responses, and 
final decisions. In regulations covering 
internal collections, an agency shall 
except from the provisions of para- 
graph (b) of this section any adjust- 
ment to pay arising out of an employ- 
ee's election of coverage or a change in 
coverage under a Federal benefits pro- 
gram requiring periodic deductions 
from pay, if the amount to be recov- 
ered was accumulated over four pay 
periods or less. 

(d) Notification before deductions 
begin. Provide for notification before 
deductions begin. Except as provided 
in paragraph (c) of this section, deduc- 
tions under the authority of 5 U.S.C 
5514 must not be made unless the 
head of the creditor agency or his des- 
ignee provides the employee at least 



436 



Pay Administration Standards 



325 



Office of Personnel Management 

30 days before any deduction, written 
notice stating at a minimum: 

(1) The creditor agency's determina- 
tion that a debt is owed, including the 
origin, nature, and amount of that 
debt; 

(2) The creditor agency's intention 
to collect the debt by means of deduc- 
tion from the employee's current dis- 
posable pay accont; 

(3) The amount, frequency, proposed 
beginning date, and duration of the in- 
tended deductions: 

(4) An explanation of the creditor 
agency's policy concerning interest, 
penalties, and administrative costs, in- 
cluding a statement that such assess- 
ments must be made unless excused in 
accordance with the FCCS; 

(5) The employee's right to inspect 
and copy Government records relating 
to the debt or. if employee or his or 
her representative cannot personally 
inspect the records, to request and re- 
ceive a copy of such records: 

(6) If not previously provided, the 
opportunity (under terms agreeable to 
the creditor agency) to establish a 
schedule for the voluntary repayment 
of the debt or to enter into a written 
agreement to establish a schedule for 
repayment of the debt in lieu of offset. 
The agreement must be in writing, 
signed by both the employee and the 
creditor agency: and documented in 
the creditor agency's files (4 CFR 
102.2(e)): 

(7) The employee's right to a hear- 
ing conducted by an official arranged 
by the creditor agency (an administra- 
tive law judge, or alternatively, a hear- 
ing official not under the control of 
the head of the agency) if a petition is 
filed as prescribed by the creditor 
agency; 

(8) The method and time period for 
petitioning for a hearing: 

(9) That the timely filing of a peti- 
tion for hearing will stay the com- 
mencement of collection proceedings; 

(10) That a final decision on the 
hearing (if one is requested) will be 
issued at the earliest practical date, 
but not later than 60 days after the 
niing of the petition requesting the 
hearing unless the employee requests 
and the hearing official grants a delay 
in the proceedings; 



§550.1104 

(11) That any knowingly false or 
frivolous statements, representations, 
or evidence may subject the employee 
to: 

(i) Disciplinary procedures appropri- 
ate under chapter 75 of title 5. United 
States Code. Part 752 of title 5. Code 
of Federal Regulations, or any other 
applicable statutes or regulations: 

(ii) Penalties under the False Claims 
Act. §§3729-3731 of title 31. United 
States Code, or any other applicable 
statutory authority: or 

(iii) Criminal penalties under §§ 286 
287, 1001. and 1002 of title 18. United 
States Code or any other applicable 
statutory authority. 

(12) Any other rights and remedies 
available to the employee under stat- 
utes or regulations governing the pro- 
gram for which the collection is being 
made: and 

(13) Unless there are applicable con- 
tractual or statutory provisions to the 
contrary, that amounts paid on or de- 
ducted for the debt which are later 
waived or found not owed to the 
United States will be promptly refund- 
ed to the employee. 

(e) Petitions for hearing. (1) Pre- 
scribe the method and time period for 
petitioning for a hearing. Ordinarily, a 
hearing may be requested by filing a 
written petition addressed to the ap- 
propriate creditor agency official stat- 
ing why the employee believes the de- 
termination of the agency concerning 
the existence or amount of the debt is 
in error. 

(2) The employee's petition or state- 
ment must be signed by the employee 
and fully identify and explain with 
reasonable specificity all the facts, evi- 
dence and witnesses, if any. which the 
employee believes support his or her 
position. 

(f ) Petitions for hearing made after 
time expires. Prescribe the action to be 
taken on a petition for hearing made 
after the expiration of the period pro- 
vided in the notice described in para- 
graph (d) of this section. Ordinarily a 
creditor agency should accept requests 
if the employee can show that the 
delay was because of circumstances 
beyond his or her control or because 
of failure to receive notice of the time 
limit (unless otherwise aware of it). 



B 



437 



326 



Claims and Debt Collection Acts Appendix 



B 



§550.1104 

(g) Form of hearings, written re- 
sponses, and final decisions. (1) 
Define the form and content of hear- 
ings, written responses, and written 
decisions to be provided when the em- 
ployee exercises his or her rights 
under § 5514 and this subpart. 

(2) The form and content of hear- 
ings granted under this subpart will 
depend on the nature of the transac- 
tions giving rise to the debts included 
within each debt collection program. 
Agencies should refer to 4 CPU 
102.3(c) for information on hearing 
form and content. 

(3) Written decisions provided after 
a request for hearing must, at a mini- 
mum, state the facts purported to evi- 
dence the nature and origin of the al- 
leged debt; the hearing official's anal- 
ysis, findings and conclusions, in light 
of the hearing, as to the employee's 
and/or creditor agency's grounds, the 
amount and validity of the alleged 
debt and. where applicable, the repay- 
ment schedule. 

(h) Method and source of deductions. 
Identify the method and source of de- 
ductions. At a minimum, agency regu- 
lations must identify the method of 
collection as salary offset and the 
source of deductions as current dispos- 
able pay. except as provided in para- 
graphs (1) and (m) of this section. 

(i) Limitation on amount of deduc- 
tions. Prescribe the limitations on the 
amount of the deduction. Ordinarily, 
the size of installment deductions 
must bear a reasonable relationship to 
the size of the debt and the employ- 
ee's ability to pay (see the FCCS). 
However, the amount deducted for 
any period must not* exceed 15 percent 
of the disposable pay from which the 
deduction is made, unless the employ- 
ee has agreed in writing to the deduc- 
tion of a greater amount. 

(j) Duration of deductions. Prescribe 
the duration of deductions. Ordinarily, 
debts must be collected in one lump- 
sum where possible. However, if the 
employee is financially unable to pay 
in one lump-sum or the amount of the 
debt exceeds 15 percent of disposable 
pay for an officially established pay 
interval, collection must be made in in- 
stallments. Such installment deduc- 
tions must be made over a period not 
greater than the anticipated period of 



5 CFR Ch. I (1-1-91 Edition) 

active duty or employment, as the case 
may be. except as provided in para- 
graphs (1) and (m) of this section. 

(k) When deductions may begin. Pre- 
scribe when deductions will be sched- 
uled to begin in internal agency collec- 
tions. 

(1) Liquidation from final check. 
Provide for offset under 31 U.S.C. 
3716. if the employee retires or resigns 
or if his or her employment or period 
of active duty ends before collection of 
the debt is completed, from subse- 
quent payments of any nature (e.g.. 
final salary payment, lump-sum leave, 
etc.) due the employee from the 
paying agency as of the date of separa- 
tion to the extent nec.essary to liqui- 
date the debt. 

(m) Recovery from other payments 
due a separated employee Provide for 
offset under 31 U.S.C. 3716 from later 
payments of any kind due the former 
employee from the United States, 
where appropriate, if the debt cannot 
be liquidated by offset from any final 
payment due the former employee as 
of the date of separation. (See 4 CFR 
102.3.) 

(n) Interest, penalties, and adminis- 
trative costs. Provide for the assess- 
ment of interest, penalties, and admin- 
istrative costs on debts being collected 
under this subpart. These charges and 
the waiving of them must be pre- 
scribed in accordance with 4 CFR 
102.13. 

(o) Non-waiver of rights by pay- 
ments. Provide that an employee's in- 
voluntary payment, of all or any por- 
tion of a debt being collected under 5 
U.S.C. 5514 must not be construed as a 
waiver of any rights which the em- 
ployee may have under 5 U.S.C. 5514 
or any other provision of contract or 
law, unless there are statutory or con- 
tractual provisions to the contrary. 

(p) Refunds. (1) Provide for prompt- 
ly refunding to the appropriate party, 
amounts paid or deducted under this 
subpart when— 

(i) A debt is waived or otherwise 
found not owing to the United States 
(unless expressly prohibited by statute 
or regulation): or 

(ii) The employee's paying agency is 
directed by an administrative or judi- 
cial order to refund amounts deducted 
from his or her current pay. 



438 



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327 



Office of Personnel Management 

(2) Refunds do not bear interest 
unless required or permitted by law or 
contract. 

§550.1105 Review and approval of agency 
regulations. 

(a) Initial OPM review of agency reg- 
ulations. (1) Creditor agencies must 
submit regulations to the Office of 
personnel Management (OPM) for 
review in accordance with 5 U.S.C. 
5514 and this subpart prior to publica- 
tion of final regulations or prior to im- 
plementation, if intragency collection 
procedures are not published. Submis- 
sions must be for agency-wide and/or 
Government-wide collections. 

(2) Creditor agency regulations must 
contain all provisions specified in 
§550.1104. If agency regulations are 
incomplete. OPM will return them 
with information as to what must be 
done to obtain approval. 

(b) Proposed changes in salary offset 
regulations. If a creditor agency pro- 
poses significant changes in the regu- 
lations covering provisions specified in 
§550.1104, the proposed revisions 
must be submitted to OPM for review 
and approval prior to implementation. 

(c) Supplemental regulations. When 
a creditor agency has issued approved 
regulations covering the provisions 
specified in § 550.1104, the agency may 
issue any supplemental regulations or 
instructions, consistent with its ap- 
proved regulations, which are neces- 
sary for solely internal operations, 
without prior OPM approval. 

§550.1106 Time limit on collection of 
debts. 

Under 4, CFR 102.3(b)(3), agencies 
may not initiate offset to collect a 
debt more than 10 years after the 
Government's right to collect the debt 
first accrued, with certain exceptions 
explained in that paragraph. 

[51 FR 21325. June 12. 1986] 

§5.50.1107 Obtaining the services of a 
hearing ofHcial. 

(a) When the debtor does not work 
for the creditor agency and the credi- 
tor agency cannot provide a prompt 
and appropriate hearing before an ad- 
ministrative law judge or before a 
hearing official furnished pursuant to 



§550.1108 

another lawful arrangement, the cred- 
itor agency may contact an agent of 
the paying agency designated in Ap- 
pendix A of Part 581 of this chapter to 
arrange for a hearing official, and the 
paying agency must then cooperate as 
provided by 4 CFR 102.1 and provide a 
hearing official. 

(b) When the debtor works for the 
creditor agency, the creditor agency 
may contact any agent (of another 
agency) designated in Appendix A of 
Part 581 of this chapter to arrange for 
a hearing official. Agencies must then 
cooperate as required by 4 CFR 102.1 
and provide a hearing official. 

[51 FR 16670. May 6. 1986] 

§550.1108 Requesting recovery when the 
current paying agency is not the credi- 
tor agency. 

(a) Responsibilities of creditor 
agency. Upon completion of the proce- 
dures established by the creditor 
agency under 5 U.S.C. 5514, the credi- 
tor agency must do the following: 

( 1 ) The creditor agency must certify, 
in writing, that the employee owes the 
debt, the amount and basis of the 
debt, the date on which payment(s) is 
due, the date the Government's right 
to collect the debt first accrued, and 
that the creditor agency's regulations 
implementing 5 U.S.C. 5514 have been 
approved by OPM. 

(2) If the collection must be made in 
installments, the creditor agency also 
must advise the paying agency of the 
amount or percentage of disposable 
pay to be collected in each install- 
ment, and if the creditor agency 
wishes, the number and the commenc- 
ing date of the installments (if a date 
other than the next officially estab- 
lished pay period is required). 

(3) Unless the employee has consent- 
ed to the salary offset in writing or 
signed a statement acknowledging re- 
ceipt of the required procedures and 
the written consent or statement is 
forwarded to the paying agency, the 
creditor agency also must advise the 
paying agency of the action(s) taken 
under 5 U.S.C. 5514(b) and give the 
date(s) the action(s) was taken. 

(4) Except as otherwise provided in 
this paragraph, the creditor agency 
must submit a debt claim containing 



D 



439 



328 



Claims and Debt Collection Acts Appendix 



B 



§550.1108 

the information specified in para- 
graphs (a) (1) through (3) of this sec- 
tion and an installment agreement (or 
other instruction on the payment 
schedule), if applicable, to the employ- 
ee's paying agency. 

(5) If the employee is in the process 
of separating, the creditor agency 
must submit its debt claim to the em- 
ployee's paying agency for collection 
as provided in §550.1104(1). The 
paying agency must certify the total 
amount of its collection and notify the 
creditor agency and the employee as 
provided in paragraph (c)(1) of this 
section. If the paying agency is aware 
that the employee is entitled to pay- 
menu from the Civil Service Retire- 
ment and Disability Fund, or other 
similar payments, it must provide writ- 
ten notification to the agency respon- 
sible for making such payments that 
the debtor owes a debt (including the 
amount) and that the provisions of 
this section have been fully complied 
with. However, the creditor agency 
must submit a properly certified claim 
to. the agency responsible for making 
such payments before the collection 
can be made. 

(6) If the employee is already sepa- 
rated and all payments due from his 
or her former paying agency have 
been paid, the creditor agency may re- 
quest, unless otherwise prohibited, 
that money due and payable to the 
employee from the Civil Service Re- 
tirement and Disability Fund (5 CFR 
831.1801 et seq.). or other similar 
funds, be administratively offset to 
collect the debt. (See 31 U.S.C. 3716 
and the FCCS.) 

(b) Responsibilities of paying 
agency^i 1 ) Complete claim. When the 
paying agency receives a properly cer- 
tified debt claim from a creditor 
agency, deductions should be sched- 
uled to begin prospectively at the next 
officially established pay interval. The 
employee must receive written notice 
that the paying agency has received a 
certified debt claim from the creditor 
agency (including the amount) and 
written notice of the date deductions 
from salary will commence and of the 
amount of such deductions. 

(2) Incomplete claim. When the 
paying agency receives an incomplete 
debt from a creditor agency, the 



5 CFR Ch. I (1-1-91 Edition) 

paying agency must return the debt 
claim with a notice that procedure.s 
under 5 U.S.C. 5514 and this subpart 
must be provided and a properly certi- 
fied debt claim received before action 
will be taken to collect from the em 
ployee's current pay account. 

(3) Review. The paying agency is not 
required or authorized to review the 
merits of the creditor agency's deter- 
mination with respect to the amount 
or validity of the debt certified by the 
creditor agency. 

(c) Employees who transfer from one 
paying agency to another. (1) If. after 
the creditor agency has submitted the 
debt claim to the employee's paying 
agency, the employee t;-ansfers to a 
position served by a different paying 
agency before the debt is collected in 
full, the paying agency from which 
the employee separates must certify 
the total amount of the collection 
made on the debt. One copy of the cer- 
tification must be furnished to the em- 
ployee, another to the creditor agency 
along with notice of the employee's 
transfer. However, the creditor agency 
must submit a properly certified claim 
to the new paying agency before col- 
lection can be resumed. 

(2) When an employee transfers to 
another paying agency, the creditor 
agency need not repeat the due proc- 
ess procedures described by 5 U.S.C. 
5514 and this subpart to resume the 
collection. However, the creditor 
agency is responsible for reviewing the 
debt upon receiving the former paying 
agency's notice of the employees 
transfer to make sure the collection is 
resumed by the new paying agency. 

151 FR 21325. June 12. 1986] 



440 



Contract 
Disputes 
Act 



Citations: 

41 U.S.C. §§601-613; 5 U.S.C. §5108(c)(3); 28 U.S.C. 
§§1346(a)(2), 1491(a)(2), 2401(a), 2414, 2510, 2517; 31 U.S.C. 
§1304(a)(3)(C)(1990); enacted November 1, 1978 by Pub. L. No. 
95-563, 92 Stat. 2383; significantly amended April 2, 1982 by 
Pub. L. No. 97-164, title I, §§156-157, 160, 161, 96 Stat. 25, 
47-49, November 5, 1990 by Pub. L. No. 101-509, Sec. 104, 104 
Stat. 1447, and November 15, 1990 by Pub. L. No. 101-552, 104 
Stat. 2736. 



Lead Agency: 

Office of Federal Procurement Policy, Office of Management 
and Budget, Washington, DC 20503 (202) 395-7207. 



Overview: 

Background. The Contract Disputes Act of 1978 was intended 
to bring greater consistency, fairness, and efficiency to the 
resolution of disputes arising out of government contracts. Before 
the Act's passage, this process was governed by various contract 
clauses, agency regulations, judicial decisions, and statutory 
provisions; procedures varied depending on the nature of the 
dispute and the agency involved. The legislation reflected in large 
part the recommendations of the Commission on Government 
Procurement, created by Congress in 1969 to recommend 
improvements in the procurement process. 

Coverage. The Act and its procedures apply to claims arising 
under or relating to express or implied contracts made by executive 



B 



I 



330 Contract Disputes Act 



branch agencies for the procurement of property other than real 
property, services, construction, alteration, repair, or maintenance 
of real property, or for the disposal of personal property. The Act 
does not reach bid protests or proceedings for the debarment or 
suspension of government contractors. 

The term "claim" is not defined by the Act; however, the 
Federal Acquisition Regulation (FAR), a detailed regulation 
establishing uniform procedures and policies for procurement by 
federal executive agencies, defines it as: "a written demand or 
written assertion by one of the contracting parties seeking, as a 
matter of right, the payment of money in a sum certain, the 
adjustment or interpretation of contract terms, or other relief 
arising under or relating to the contract. ... A voucher, invoice, 
or other routine request for payment that is not in dispute when 
submitted is not a claim." 48 CFR §33.201 (1990). Cognizable 
claims include disputes arising under specific contract clauses (for 
example, when the parties cannot agree on an amount of 
compensation owed under clauses authorizing equitable adjustment 
for contract changes or for site conditions different from those 
anticipated when the contract was formed) as well as claims for 
breach of contract. Terminations for default are considered claims 
by the government under the Act. 

Agency Procedures. The system established by the Contract 
Disputes Act begins with the contracting officer, an agency official 
authorized to enter into, administer, and terminate contracts on 
behalf of the government. The contracting officer plays a dual role 
in the disputes process, both representing the government as a 
party to the contract and rendering decisions on claims arising out 
of disputes between the parties. If a dispute arises during contract 
performance that cannot be amicably resolved (e.g., through 
exchange of correspondence or negotiation), the contractor can 
invoke the procedures of the Contract Disputes Act by presenting a 
claim to the contracting officer. The claim must be in writing, 
provide adequate notice to the government of the basis for the 
demand and the relief sought, and clearly indicate the contractor's 
intent to seek a decision from the contracting officer. 

If the essence of the dispute is money (for example, a claim for 
increased costs or for payment of die contract balance), the 
contractor must quantify the claim. In addition, for any claim over 
$50,000, the contractor must certify that "the claim is made in 
good faith, that the supporting data are accurate and complete to 
the best of [the contractor's] knowledge and belief, and that the 
amount requests accurately reflects the contract adjustment for 



Contract Disputes Act 331 



which the contractor believes the government is liable." 41 U.S.C. 
§605(c)(l). The certification provision, incorporated into the Act 
to discourage inflated contractor claims, has proven to be one of 
the more controversial aspects of the law.^ If a claim for more 
than $50,000 has not been properly certified, a contracting officer 
cannot issue an appealable decision on the claim (and thus neither 
an agency board of contract appeals nor the Claims Court can 
adjudicate the merits of the case). Of particular concern to the 
contractor is that interest on a successful claim is payable only 
from the date the claim was properly certified. 

If a claim cannot be settled by mutual agreement, the 
contracting officer must issue a written decision on the claim, 
stating the reasons for the decision and informing the contractor of 
available appeal rights. The Act requires the contracting officer to 
issue this decision within 60 days of receipt of a claim for $50,000 
or less, and within a reasonable time after receipt of a larger claim 
(in which case the contracting officer must notify the contractor 
within 60 days as to when the decision will issue). If these 
deadlines are not met, the contractor may petition an agency board 
of contract appeals to direct the contracting officer to issue a 
decision. In any event, if the contracting officer fails to issue a 
timely decision, the claim will be deemed denied under the statute, 
permitting the contractor to pursue an appeal. 

If the contracting officer issues an adverse decision on a 
contractor's claim or issues a decision asserting a government 
claim against the contractor (e.g., terminating the contract for 
default, asserting a right to excess reprocurement costs, or 
demanding payment to recover the costs of repairing or replacing 
defective work), the contractor has two avenues of appeal to choose 
from. The contractor may file an appeal at the agency board of 
contract appeals identified in the contract's "Disputes" clause 
within 90 days after receiving the contracting officer's decision. 
Alternatively, the contractor may file suit directly in the U.S. 
Claims Court within 12 months from the date it received the 
contracting officer's decision. In either forum, proceedings on the 
claim will be de novo; any findings of fact made by the contracting 
officer in his or her final decision will not be binding. Only the 
contractor has the right to initiate litigation and to select the forum; 



B 



See Conference Recommendation 83-1, The Certification Requirement in the Contract 
Disputes Act, 1 CFR §305.83-1 (1992); Madden, Certification Requirements Under the 
Contract Disputes Act, Report to the Administrative Conference of the U.S., 1983 
ACUS23. 



D 



332 Contract Disputes Act 



if the contractor neither appeals nor files suit in the Claims Court, 
the contracting officer's decision becomes final. 

The agency boards of contract appeals (of which there are 
currently 12) are quasi-judicial tribunals within the executive 
branch, composed of administrative judges with at least 5 years of 
public contract law experience who are authorized to adjudicate 
contract disputes on behalf of the heads of their respective 
agencies. Congress intended the agency boards to be informal, 
expeditious, and inexpensive. In spirit, if not always in practice, 
the procedures of the boards reflect this intention. For example, 
under uniform rules of procedure for boards of contract appeals 
developed by the Office of Federal Procurement Policy (see 
below), hearings are to be "as informal as may be reasonable and 
appropriate under the circumstances." Contractors may appear /7r(? 
j^-without the aid of counsel. Agency boards offer accelerated 
disposition of appeals involving claims of $50,000 or less 
(providing resolution within 180 days of the contractor's election) 
and expedited disposition for disputes of $10,000 or less (with a 
120-day resolution period). Moreover, several of the agency 
boards have taken tentative steps to encourage parties to consider 
alternatives to flill-scale litigation (so-called alternative dispute 
resolution, or "ADR", see Chapter 3). For instance, the Armed 
Services Board of Contract Appeals, the largest of the agency 
boards, distributes a "Notice Regarding Alternative Methods of 
Dispute Resolution" to its litigants, which describes various 
alternatives to litigation. 

In contrast to the agency boards, which deal exclusively with 
government contracting, the Claims Court's docket includes a 
broad range of litigation involving the federal government in 
adding to government procurement. Its proceedings are somewhat 
more formalized than those of the boards. For instance, use of the 
Federal Rules of Evidence is mandatory and corporations must be 
represented by attorneys. Despite its formalities, the court has 
implemented two metiiods of ADR: settlement judges and 
minitrials. Although the Claims Court does not offer accelerated 
or expedited procedures, it can (unlike the agency boards) 
adjudicate disputes alleging fraud and grant injunctive relief. In 
contrast to agency board decisions, which are collegial. Claims 
Court decisions are issued by a single judge. 

The contractor may appeal the decision of either tribunal to the 
U.S. Court of Appeals for the Federal Circuit. In addition, the Act 
permits the government (with the Attorney General's approval) to 
appeal adverse decisions; previously, the government could not 



Contract Disputes Act 333 



appeal contract appeals board decisions. The standard of review 
for findings of fact by contract appeals boards is one of substantial 
evidence (this standard was retained from preexisting law); for 
Claims Court decisions, the Federal Circuit will apply a "clearly 
erroneous," standard to rulings on questions of fact. 

Practically speaking, the decision of the Federal Circuit ends the 
litigation. A party may not seek review by the Supreme Court as a 
matter of right, and the Supreme Court rarely agrees to consider 
government contract cases. 

OFPP Guidance. The Act directed the Office of Federal 
Procurement Policy to issue guidelines for the establishment and 
procedures of agency contract appeals boards. The model rules 
developed pursuant to this mandate appear in the Appendix to this 
chapter. (Individual boards' procedural rules are cited below.) In 
addition, the Office of Federal Procurement Policy issued a policy 
directive (OFPP Policy Letter 80-3; see Appendix) setting forth 
procedures for handling claims by agency contracting officers and 
the text of a disputes clause to be included in government 
contracts. 

Other Provisions. In addition to establishing a single 
comprehensive law covering the contract disputes process for 
almost all government contracts (some, such as procurements by 
the Tennessee Valley Authority, remain outside the scope of the 
law), the Contract Disputes Act made several other important 
changes in existing law. The Act strengthened contract appeals 
boards, giving them subpoena power and authorizing them to grant 
any relief within the authority of the Claims Court. ^ Moreover, 
appeals boards can now hear breach of contract claims as well as 
those "arising under" a contract. The law also added new 
requirements for selecting contract appeals board members, 
intended to enhance the quality and independence of the boards. 



Legislative History: 

Efforts to pass contract disputes legislation began after the 
Commission on Government Procurement issued its final report 
and recommendations in 1973 and reached fruition in October 



B 



^Amendments to the Equal Access to Justice Act in 1985 authorized the boards to 
award attorneys fees and expenses under the Equal Access to Justice Act, eliminating one of 
the distinctions between the two fora. (See Chapter 7.) 



B 



334 Contract Disputes Act 



1978. H.R. 11002 was introduced by Representatives Harris (D. 
Va.) and Kindness (R. Ohio) on February 20, 1978 and reported 
favorably by the House Judiciary Committee without hearings. 
(The Conmiission had held hearings on similar legislation the 
previous year.) The House passed the bill on September 26, 1978. 
A similar Senate bill, S. 3178, was introduced by Senators Chiles 
(D. Fla.), Packwood (R. Ore.), Heinz (R. Pa.), and DeConcini (D. 
Ariz.) on June 7, 1978 and favorably reported, with amendments, 
by the Committees on Governmental Affairs and the Judiciary. 
The Senate took up floor consideration of the bill on October 12, 
agreeing to amendments that exempted the Tennessee Valley 
Authority from certain of the Act's requirements, added the 
requirement that claims of $50,000 or more be certified, deleted a 
requirement that an informal settlement conference be afforded 
contractors, and changed the standard of judicial review of contract 
appeals board decisions from "clearly erroneous" to "substantial 
evidence," among other things. The Senate then passed H.R. 
11002, amended to contain the amended provisions of S. 3178, and 
the House agreed to the Senate-passed version the next day. 

Perhaps because it was passed quickly, at the end of the 
legislative session, the Contract Disputes Act (including the Senate 
amendments to it) was not the subject of extensive debate. 
However, the Congressional Record for October 12 does include a 
brief explanation of the amendments agreed to on the floor 
(95 Cong. Rec. 36261-68). 



Source Note: 

There are considerable materials available on federal contract 
law generally and on contract disputes and the 1978 Act 
specifically. Most of these materials are aimed at practicing 
attorneys specializing in government contract law. The items listed 
here are representative of the types of materials available; the list is 
by no means complete. Of these materials the looseleaf services 
published by Commerce Clearinghouse (Government Contract 
Reporter and Contract Appeals Board Decisions) are the most 
comprehensive and, because they are frequently updated, the most 
current. The Government Contractor also provides up-to-date 
information and analysis. Government Contract Disputes (1986) 
and Government Contract Claims (1981) include extensive 
historical material and information on other aspects of government 



Contract Disputes Act 335 



contract law as well as the Contract Disputes Act. Other 
publications, such as Contract Disputes Aa of 1978: Explanation 
and Analysis (1979), provide overviews of the effect of the Act on 
preexisting contract law. Crowell and Pou's Appealing 
Government Contract Decisions (1990) examines and gives advice 
on using ADR in contract claims. For more on this issue, see 
Chapter 3. Note that pre- 1982 publications do not reflect 
amendments to the Act made by the Federal Courts Improvement 
Act of 1982, which (among other things) created the Court of 
Appeals for the Federal Circuit and gave it jurisdiction over 
appeals from decisions of contract appeals boards and decisions of 
the Claims Court. 



B 



Bibliography: 



I. Legislative History 

1. Hearings on H,R. 664 and Related Bills before the 
Subcommittee on Administrative Law and Governmental Relations 
of the House Committee on the Judiciary, 95th Cong., 1st Sess. 
(1977). 

2. House of Representatives Conmiittee on the Judiciary, Report 
to Accompany H.R. 11002, H.R. Rep. No. 95-1556, 95th Cong., 
2d Sess. (1978). 

3. Joint Hearings before the Subcommittee on Federal Spending 
Practices and Open Government, Senate Governmental Affairs 
Committee, and the Subcommittee on Citizens and Shareholders 
Rights and Remedies, Senate Judiciary Committee, on S. 3178 and 
S. 2787, 95th Cong., 2d Sess. (1978). 

4. Senate Comms. on Governmental Affairs and the Judiciary, 
Report to Accompany S. 3178, S. Rep. No. 95-1118, 95th Cong., 
2d Sess. (1978), reprinted in 1978 U.S. Code Cong. & Ad. News 
5235. 

n. Other Government Documents 

1. Administrative Conference of the U.S., Recommendation 
89-2, Contracting Officers' Management of Disputes, 1 CFR 
§305.89-2 (1992). 



336 Contract Disputes Act 



2. Administrative Conference of the U.S., Recommendation 
87-11, Alternatives for Resolving Government Contract Disputes, 
1 CFR §305.87-11 (1992). 

3. Administrative Conference of the U.S., Reconmiendation 
83-1, The Certification Requirement in the Contract Disputes Act, 
1 CFR §305.83-1 (1992). 

4. Bednar, Government Contraaing Officers Should Make 
Greater Use of ADR Techniques in Resolving Contract Disputes, 
Report to the Administrative Conference of the U.S., 1989 ACUS 
149. 

5. Conmiission on Government Procurement, Report of the 
Commission on Government Procurement, Vol. 4 (Washington, DC 
1972). 

6. Crowell & Pou, Appealing Government Contract Decisions: 
Reducing the Cost and Delay of Procurement Litigation, Report to 
the Administrative Conference of the U.S., 1987 ACUS 1139, 
portions reprinted in 49 Maryland L. Rev. 183 (1990). 

7. General Accounting Office, The Armed Services Board of 
Contract Appeals Has Operated Independently, GAO/NSIAD-85- 
102, B-198620 (1985). 

8. Madden, Certification Requirements under the Contract 
Disputes Act, Report to the Administrative Conference of the U.S., 
1983 ACUS 23. 

9. Office of Federal Procurement Policy, Boards of Contract 
Appeals: Position Allocation Pursuant to Pub. L. No. 95-563, 
OFPP Policy Letter 79-2 (June 26, 1979). 

10. Office of Federal Procurement Policy, Final Uniform Rules 
of Procedure for Boards of Contract Appeals Under the Contract 
Disputes Act of 1978, 44 Fed. Reg. 34227 (June 14, 1979). 

11. Office of Federal Procurement Policy, Interim Final 
Uniform Rules of Procedure for Boards of Contract Appeals and 
Related Regulations, 44 Fed. Reg. 12519 (March 7, 1979). 

12. Office of Federal Procurement Policy, Proposed Uniform 
Rules of Procedure for Boards of Contract Appeals, 44 Fed. Reg. 
5219 (January 25, 1979). 

13. Office of Federal Procurement Policy, Regulatory Guidance 
on Public Law No. 95-563, the Contract Disputes Act of 1978, 
OFPP Policy Letter 80-3, 45 Fed. Reg. 31035 (May 9, 1980). 



Contract Disputes Act 337 



m. Reports and Periodicals 

1. Bureau of National Affairs, Federal Contracts Report 
(published weekly; reports major developments in government 
contracting, including legislation, regulations, administrative 
policies, court and board decisions). 

2. Commerce Clearing House, Contract Appeals Decisions 
(published biweekly; includes the full text of decisions by boards of 
contract appeals). 

3. Commerce Cleaning House, Government Contraas Reporter 
(published weekly; includes current information and new 
developments related to statutes, regulations, cases, and legislation, 
as well as the Federal Acquisition Regulation and agency 
supplements). 

4. Federal Publications, Briefing Papers (published monthly; 
practical, topical papers on government contracting issues-includes 
an annual "Procurement Review," surveying significant 
developments of the preceding year, and an annual "Procurement 
Bibliography," citing most procurement articles published during 
the previous year). 

5. Federal Publications, Federal Court Procurement Decisions 
(published monthly; provides all government contract decisions 
issued by the Claims Court, the Court of Appeals for the Federal 
Circuit, and the Supreme Court, including decisions by the Federal 
Circuit that are designated not to be cited as precedent because they 
do not contribute significantly to the body of law). 

6. Federal Publications, The Government Contractor (published 
biweekly; reports on and analyzes legal rulings and other 
significant developments, such as new and proposed laws and 
regulations). 

7. Federal Publications, Yearbook of Procurement Articles 
(published annually; contains photoreproductions of significant 
procurement articles written during the prior year). 

8. Holbrook & Kellogg, Inc., Federal Acquisition Report 
(published monthly; highlights contract news, including legislation, 
regulatory changes, and legal decisions). 

9. Keiser Publications, The Nash <k Cibinic Report (published 
monthly; provides opinion and advice on current government 
contract issues). 

10. National Contract Management Association, National 
Contract Management Journal (published semi-annually; contains 
current articles on issues of government contract administration and 
highlights legislative and regulatory developments). 



B 



338 Contract Disputes Act 



1 1 . Section of Public Contract Law, American Bar Association, 
Public Contract Law Journal (published quarterly; a law review 
with a public contract focus). 

rv. Texts, Articles, and Instructional Materials 

1. Anthony & Smith, The Federal Courts Improvement Act of 
1982: Its Impact on the Resolution of Federal Contract Disputes, 
13 Pub. Cont. L. J. 201 (1983). 

2. Amavas & Ferrell, Motions Before Contract Appeals 
Boards, Briefing Papers No. 86-9 (Fed. Pubs., 1986). 

3. D. Arnavas & W. Ruberry, Government Contract 
Guidebook (Fed. Pubs., 1987 with 1990 suppl.). 

4. Blum, Government Contract Guidebook Workbook (Fed. 
Pubs., 3d ed. 1990). 

5. Board of Contract Appeals Committee, Federal Bar 
Association, Manual for Practice before Boards of Contract 
Appeals (Fed. B. A., 1981). 

6. Cibinic, What's a "Claim": Is Prior Disagreement 
Necessary?, 2 N&CR 125 (Reiser Pubs., 1988). 

7. J. Cibinic & R. Nash, Administration of Government 
Contracts (Government Contracts Program, Geo. Wash. U., 2d ed. 
1985). 

8. J. Cibinic & R. Nash, Government Contract Claims 
(Government Contracts Program, Geo. Wash. U., 1981). 

9. Coburn, The Contract Disputes Act of 1978 (Practicing 
Law Institute, 1982). 

10. Dees & Churchill, Government Contract Disputes and 
Remedies: Corrective Legislation is Required, 14 Pub. Cont. L.J. 
201 (1984). 

11. Dover & Pollack, Invoking the Contract Disputes Act- 
Potential Pitfalls, Briefing Papers No. 90-8 (Fed. Pubs., 1990). 

12. Fugh & Nagle, The Disputes Process- A Management Tool: 
Advice for Contracting Personnel, The Army Lawyer, Oct. 1989, 
at 4. 

13. Grossbaum, "Debugging" the Contract Disputes Act of 
1978, 17 Nat. Cont. M. J. 1 (1983). 

14. Hinton, Post-Contract Disputes Act Jurisdiction over 
Nonmonetary Contract Disputes: A Critique of Malone v. United 
States, 19 Pub. Cont. L.J. 174 (1989). 

15. Houston, Contract Dispute Litigation Before the ASBCA, 29 
A.F. L. Rev. 195 (1988). 



Contract Disputes Act 339 



16. Keyes, Government Contracts Under the Federal 
Acquisition Regulation (West Publishing Co., 1986 & supps.). 

17. P. Latham, Government Contract Disputes (Fed. Pubs., 2d 
ed. 1986 with 1991 supp. pending). 

18. Lipman, Basics of Government Contracting (audio cassettes) 
(Fed. Pubs., 1990). 

19. Nash, Litigating Contract Disputes: Expediting Appeals 
Board Cases, 4 N&CR 139 (Keiser Pubs., 1990). 

20. Nash, The Contract Disputes Act: A Prescription for 
Wheelspinning, 4 N&CR 129 (Keiser Pubs., 1990). 

21. Nash, The Contract Disputes Act: Can It Be Improved?, 1 
N&CR 188 (Keiser Pubs., 1987). 

22. R. Peacock, A Complete Guide to the Contract Disputes Act 
(ABA, 1986). 

23. Peacock, Discovery Before Boards of Contracts Appeals, 13 
Pub. Com. L.J. 1 (1982). 

24. Perlman & Goodrich, Contract Disputes Procedures, 
Briefing Papers No. 82-6 (Fed. Pubs., 1982). 

25. Pettit, Anthony, Joseph & Vacketta, Contract Disputes Act 
of 1978: Explanation and Analysis, Briefing Papers No. 79-2 (Fed. 
Pubs., 1979). 

26. Pettit & Meagher, Certification, Briefing Papers No. 87-7 
(Fed. Pubs., 1987). 

27. Reifel & Bastianelli, Contracting Officer Authority, Briefing 
Papers No. 86-4 (Fed. Pubs., 1986). 

28. D. Riley, Federal Contracts Grants & Assistance (McGraw- 
Hill, 1983 & supps.). 

29. Schooner, How to Work with the FAR (video cassettes) 
(Fed. Pubs., 1989). 

30. Section of Public Contract Law, American Bar Association, 
Current Issues in Disputes Litigation (ABA, 1987). 

31. Shea & Shaengold, A Guide to the Court of Appeals for the 
Federal Circuit, Briefing Papers No. 90-13 (Fed. Pubs., 1990). 

32. Webber et al., Section of Public Contract Law, American 
Bar Association, Federal Contract Claims and Remedies 
Committee, Direct Access Contract Actions: The Underused 
Option: A Survey of Factors Influencing the Choice Between the 
U.S. Claims Court and the Board of Contract Appeals During the 
Period 1984-1986, Spring Council Meeting notes, reprinted in 
part. Pub. Com. Newsl., Fall 1988, at 3. 

33. Williams, A Brief Look at the Armed Services Board of 
Contract Appeals, Pub. Com. Newsl., Fall 1986, at 3. 



B 



340 Contract Disputes Act 



Agency Board of Contract Appeals Regulations: 

Agriculture 7 CFR Part 24 

Armed Services 48 CFR Chap. 2, Appendix A 

Army Corps of Engineers 33 CFR §§210.4-210.5 

Energy 10 CFR Parts 703, 1023 

General Services Administration 48 CFR Part 6101 

Housing and Urban Development 

(also uses the OFPP uniform rules) 24 CFR Part 20 

Interior 43 CFR Part 4, Subparts A, B, 

andC 

Labor 41 CFR Part 29-60 

National Aeronautics and 

Space Administration 14 CFR Part 1209, Subpart 1 

and Part 1241 

Postal Service 39 CFR Part 955 

Tennessee Valley Authority 18 CFR Part 1308 

Transportation 48 CFR Parts 6301, 6302 

Veterans Affairs 38 CFR §§1.770-1.783 



Appendix: 

1. Contract Disputes Act of 1978, 41 U.S.C. §§601-613; 
5 U.S.C. §5108(c)(3); 28 U.S.C. §§1346(a)(2), 1491(a)(2), 
2401(a), 2414, 2510, 2517; 31 U.S.C. §1304(a)(3)(C)(1990). 

2. Office of Federal Procurement Policy, Proposed Uniform 
Rules of Procedure for Boards of Contract Appeals, 44 Fed. Reg. 
5219 (January 25, 1979). 

3. Office of Federal Procurement Policy, Interim Final 
Uniform Rules of Procedure for Boards of Contract Appeals and 
Related Regulations, 44 Fed. Reg. 12519 (March 7, 1979). 

4. Office of Federal Procurement Policy, Final Uniform Rules 
of Procedure for Boards of Contract Appeals Under the Contract 
Disputes Act of 1978, 44 Fed. Reg. 34227 (June 14, 1979). 

5. Office of Federal Procurement Policy, Regulatory Guidance 
on Pub. L. No. 95-563, the Contract Disputes Act of 1978, OFPP 
Policy Letter 80-3, 45 Fed. Reg. 31035 (May 9, 1980). 



Contract Disputes Act 341 



Contract Disputes Act 
Title 41, U.S. Code 
Chapter 9~Contract Disputes 



§601. Definitions. 

§602. Applicability of law. 

(a)Executive agency contracts. 

(b)Tennessee Valley Authority contracts. 

(c)Foreign government or international organization contracts. 
§603. Maritime contracts. 
§604. Fraudulent claims. 
§605. Decision by contracting officer. 

(a)Contractor claims. 

(b)Review; performance of contract pending appeal. 

(c)Amount of claim; certification; notification; time of issuance; presumption. 

(d)Altemative means of dispute resolution. 

(e)Termination of authority to engage in alternative means of dispute 
resolution; savings provision. 

§606. Contractor's right of appeal to board of contract appeals. 
§607. Agency boards of contracts appeals. 

(a)Establishment; consultation; Tennessee Valley Authority. 

(b)Appointment of members; chairman; compensation. 

(c) Appeals; inter-agency arrangements. 

(d)Jurisdiction. 

(e)Decisions. 

(f) Accelerated appeal disposition. 

(g)Review. 

(h)Procedural guidelines. 
§608. Small claims. 

(a)Accelerated disposition of appeals. 

(b)Simplified rules of procedure. 

(c)Time of decision. 

(d)Finality of decision. 

(e)Effect of decision. 

(f)Review of requisite amount in controversy. 
§609. Judicial review of board decisions. 

(a)Actions in United States Claims Court; district court actions; time for filing. 

(b)Finality of board decision. 

(c)Remand or retention of case. 

(d)Consolidation. 

(e)Judgments as to fewer than all claims. 



B 



B 



342 CoNTOACT Disputes Act Appendix 



§610. Subpena, discovery, and deposition. 

§611. Interest. 

§612. Payment of claims. 

(a)Judgments. 
(b)Monetary awards. 
(c)Reifnbursement. 
(d)Tennessee Valley Authority. 
§613. Separability. 

§601. DeHnitions 

As used in this chapter- 

(1) the term "agency head" means the head and any assistant head of an 
executive agency, and may "upon the designation by" the head of an executive 
agency include the chief official of any principal division of the agency; 

(2) the term "executive agency" means an executive department as defined in 
section 101 of title 5, an independent establishment as defined by section 104 of 
title 5 (except that it shall not include the General Accounting Office), a military 
department as defined by section 102 of title 5, and a wholly owned Government 
corporation as defined by section 9101(3) of title 31, the United States Postal 
Service, and the Postal Rate Commission; 

(3) The term "contracting officer" means any person who, by appointment in 
accordance with applicable regulations, has the authority to enter into and 
administer contracts and make determinations and findings with respect thereto. 
The term also includes the authorized representative of the contracting officer, 
acting within the limits of his authority; 

(4) the term "contractor" means a party to a Government contract other than 
the Government; 

(5) The term "Administrator" means the Administrator for Federal 
Procurement Policy appointed pursuant to the Office of Federal Procurement 
Policy Act [41 U.S.C. 401 et seq.]; 

(6) The term "agency board" means an agency board of contract appeals 
established under section 607 of this title; and 

(7) The term "misrepresentation of fact" means a false statement of 
substantive fact, or any conduct which leads to a belief of a substantive fact 
material to proper understanding of the matter in hand, made with intent to 
deceive or mislead. 

(Pub. L. No. 95-563, §2, Nov. 1, 1978, 92 Stat. 2383.) 

§602. Applicability of law 
(a) Executive agency contracts 

Unless otherwise specifically provided herein, this chapter applies to any 
express or implied contract (including those of the nonappropriated fund activities 
described in sections 1346 and 1491 of title 28) entered into by an executive 
agency for~ 

(1) the procurement of property, other than real property in being; 



Contract Disputes Act 343 



(2) the procurement of services; 

(3) the procurement of construction, alteration, repair or maintenance of real 
property; or, 

(4) the disposal of personal property. 

(b) Tennessee Valley Authority contracts 

With respect to contracts of the Tennessee Valley Authority, the provisions of 
this chapter shall apply only to those contracts which contain a disputes clause 
requiring that a contract dispute be resolved through an agency administrative 
process. Notwithstanding any other provision of this chapter, contracts of the 
Tennessee Valley Authority for the sale of fertilizer or electric power or related to 
the conduct or operation of the electric power system shall be excluded from the 
chapter. 

(c) Foreign government or international organization contracts 

This chapter does not apply to a contract with a foreign government, or 
agency thereof, or international organization, or subsidiary body thereof, if the 
head of the agency determines that the application of the chapter to the contract 
would not be in the public interest. 
(Pub. L. No. 95-563, §3, Nov. 1, 1978, 92 Stat. 2383.) 

§603. Maritime contracts 

Appeals under paragraph (g) of section 607 of this title and suits under section 
609 of this title, arising out of maritime contracts, shall be governed by chapter 20 
or 22 of title 46, Appendix, as applicable, to the extent that those chapters are not 
inconsistent with this chapter. 
(Pub. L. No. 95-563, §4, Nov. 1, 1978, 92 Stat. 2384.) 

§604. Fraudulent claims 

If a contractor is unable to support any part of his claim and it is determined 
that such inability is attributable to misrepresentation of fact or fraud on the part 
of the contractor, he shall be liable to the Government for an amount equal to 
such unsupported part of the claim in addition to all costs to the Government 
attributable to the cost of reviewing said part of his claim. Liability under this 
subsection' shall be determined within six years of the commission of such 
misrepresentation of fact or fraud. 
(Pub. L. No. 95-563, §5, Nov. 1, 1978, 92 Stat. 2384.) 



'So in original. Probably should be "section' 



B 



344 Contract Disputes Act Appendix 

§ 605. Decision by contracting officer 

(a) Contractor claims 

All claims by a contractor against the govenunent relating to a contract shall 
be in writing and shall be submitted to the contracting officer for a decision. All 
claims by the government against a contractor relating to a contract shall be the 
subject of a decision by the contracting officer. The contracting officer shall issue 
his decisions in writing, and shall mail or otherwise furnish a copy of the decision 
to the contractor. The decision shall state the reasons for the decision reached, 
and shall inform the contractor of his rights as provided in this chapter. Specific 
findings of fact are not required, but, if made, shall not be binding in any 
subsequent proceeding. The authority of this subsection shall not extend to a claim 
or dispute for penalties or forfeitures prescribed by statute or regulation which 
another Federal agency is specifically authorized to administer, settle, or 
determine. This section shall not authorize any agency head to settle, 
compromise, pay, or otherwise adjust any claim involving fraud. 

(b) Review; performance of contract pending appeal 

The contracting officer's decision on the claim shall be final and conclusive 
and not subject to review by any forum, tribunal, or Government agency, unless 
an appeal or suit is timely commenced as authorized by this chapter. Nothing in 
this chapter shall prohibit executive agencies from including a clause in 
government contracts requiring that pending fmal decision of an appeal, action, or 
final settlement, a contractor shall proceed diligently with performance of the 
contract in accordance with the contracting officer's decision. 

(c) Amount of claim; certification; notification; time of issuance; 
presumption 

(1) A contracting officer shall issue a decision on any submitted claim of 
$50,000 or less within sixty days from his receipt of a written request from the 
contractor that a decision be rendered within that period. For claims of more than 
$50,000, the contractor shall certify that the claim is made in good faith, that the 
supporting data are accurate and complete to the best of his knowledge and belief, 
and that the amount requested accurately reflects the contract adjustment for 
which the contractor believes the government is liable. 

(2) A contracting officer shall, within sixty days of receipt of a submitted 
certified claim over $50,000— 

(A) issue a decision; or 

(B) notify the contractor of the time within which a decision will be issued. 

(3) The decision of a contracting officer on submitted claims shall be issued 
within a reasonable time, in accordance with regulations promulgated by the 
agency, taking into account such factors as the size and complexity of the claim 
and the adequacy of the information in support of the claim provided by the 
contractor. 



Contract Disputes Act 345 



(4) A contractor may request the agency board of contract appeals to direct a 
contracting officer to issue a decision in a specified period of time, as determined 
by the board, in the event of undue delay on the part of the contracting officer. 

(5) Any failure by the contracting officer to issue a decision on a contract 
claim within the period required will be deemed to be a decision by the 
contracting officer denying the claim and will authorize the commencement of the 
appeal or suit on the claim as otherwise provided in this chapter. However, in the 
event an appeal or suit is so commenced in the absence of a prior decision by the 
contracting officer, the tribunal concerned may, at its option, stay the proceedings 
to obtain a decision on the claim by the contracting officer. 

(d) Alternative means of dispute resolution 

Notwithstanding any other provision of this chapter, a contractor and a 
contracting officer may use any alternative means of dispute resolution under 
subchapter IV of chapter 5 of title 5, or other mutually agreeable procedures, for 
resolving claims. In a case in which such alternative means of dispute resolution 
or other mutually agreeable procedures are used, the contractor shall certify that 
the claim is made in good faith, that the supporting data are accurate and complete 
to the best of his or her knowledge and belief, and that the amount requested 
accurately reflects the contract adjustment for which the contractor believes the 
Government is liable. All provisions of subchapter IV of chapter 5 of title 5, shall 
apply to such alternative means of dispute resolution. 

(e) Termination of authority to engage in alternative means of dispute 
resolution; savings provision 

The authority of agencies to engage in alternative means of dispute resolution 
proceedings under subsection (d) of this section shall cease to be effective on 
October 1, 1995, except that such authority shall continue in effect with respect to 
then pending dispute resolution proceedings which, in the judgment of the 
agencies that are parties to such proceedings, require such continuation, until such 
proceedings terminate. 

(Pub. L. No. 95-563, §6, Nov. 1, 1978, 92 Stat. 2384; Pub. L. No. 101-552, 
§6(a), Nov. 15, 1990, 104 Stat. 2745.) 

§606. Contractor's right of appeal to board of contract appeals 

Within ninety days from the date of receipt of a contracting officer's decision 
under section 605 of this title, the contractor may appeal such decision to an 
agency board of contract appeals, as provided in section 607 of this title. 
(Pub. L. No. 95-563, §7, Nov. 1, 1978, 92 Stat. 2385.) 

§607. Agency boards of contracts appeals 

(a) Establishment; consultation; Tennessee Valley Authority 

(1) Except as provided in paragraph (2) an agency board of contract appeals 
may be established within an executive agency when the agency head, after 



B 



346 Contract Disputes Act Appendix 



consultation with the Administrator, determines from a workload study that the 
volume of contract claims justifies the establishment of a fiill-time agency board of 
at least three members who shaU have no other inconsistent duties. Workload 
studies will be updated at least once every three years and submitted to the 
Administrator. 

(2) The Board of Directors of the Tennessee Valley Authority may establish a 
board of contract appeals for the Authority of an indeterminate number of 
members. 

(b) Appointment of members; chairman; compensation 

(1) Except as provided in paragraph (2), the members of agency boards shall 
be selected and appointed to serve in the same manner as administrative law 
judges appointed pursuant to section 3105 of title 5, with an additional 
requirement that such members shall have had not fewer than five years' 
experience in public contract law. Full-time members of agency boards serving as 
such on the effective date of this chapter shall be considered qualified. The 
chairman and vice chairman of each board shall be designated by the agency head 
from members so appointed. Compensation for the chairman, the vice chairman, 
and all other members of an agency board shall be determined under section 
5372a of title 5. 

(2) The Board of Directors of the Tennessee Valley Authority shall establish 
criteria for the appointment of members to its agency board of contract appeals 
established in subsection (a)(2) of this section, and shall designate a chairman of 
such board. The chairman and all other members of such board shall receive 
compensation, at the daily equivalent of the rates determined under section 5372a 
of title 5, for each day they are engaged in the actual performance of their duties 
as members of the board. 

(c) Appeals; inter-agency arrangements 

If the volume of contract claims is not sufficient to justify an agency board 
under subsection (a) of this section or if he otherwise considers it appropriate, any 
agency head shall arrange for appeals from decisions by contracting officers of his 
agency to be decided by a board of contract appeals of another executive agency. 
In the event an agency head is unable to make such an arrangement with another 
agency, he shall submit the case to the Administrator for placement with an 
agency board. The provisions of this subsection shall not apply to the Tennessee 
Valley Authority. 

(d) Jurisdiction 

Each agency board shall have jurisdiction to decide any appeal from a 
decision of a contracting officer (1) relative to a contract made by its agency, and 
(2) relative to a contract made by any other agency when such agency or the 
Administrator has designated the agency board to decide the appeal. In exercising 
this jurisdiction, the agency board is authorized to grant any relief that would be 
available to a litigant asserting a contract claim in the United States Claims Court. 



Contract Disputes Act 347 



(e) Decisions 

An agency board shall provide to the fullest extent practicable, informal, 
expeditious, and inexpensive resolution of disputes, and shall issue a decision in 
writing or take other appropriate action on each appeal submitted, and shall mail 
or otherwise furnish a copy of the decision to the contractor and the contracting 
officer. 

(f) Accelerated appeal disposition 

The rules of each agency board shall include a procedure for the accelerated 
disposition of any appeal from a decision of a contracting officer where the 
amount in dispute is $50,000 or less. The accelerated procedure shall be 
applicable at the sole election of only the contractor. Appeals under the 
accelerated procedure shall be resolved, whenever possible, within one hundred 
and eighty days from the date the contractor elects to utilize such procedure. 

(g) Review 

(1) The decision of an agency board of contract appeals shall be final, except 
that- 

(A) a contractor may appeal such a decision to the United States Court of 
Appeals for the Federal Circuit within one hundred twenty days after the date of 
receipt of a copy of such decision, or 

(B) the agency head, if he determines that an appeal should be taken, and with 
the prior approval of the Attorney General, transmits the decision of the board of 
contract appeals to the Court of Appeals for the Federal Circuit for judicial review 
under section 1295 of title 28, within one hundred and twenty days from the date 
of the agency's receipt of a copy of the board's decision. 

(2) Notwithstanding the provisions of paragraph (1), the decision of the board 
of contract appeals of the Tennessee Valley Authority shall be final, except that- 

(A) a contractor may appeal such a decision to a United States district court 
pursuant to the provisions of section 1337 of title 28, within one hundred twenty 
days after the date of receipt of a copy of such decision, or 

(B) The Tennessee Valley Authority may appeal the decision to a United 
States district court pursuant to the provisions of section 1337 of title 28, within 
one hundred twenty days after the date of the decision in any case. 

(3) An award by an arbitrator under this chapter shall be reviewed pursuant to 
sections 9 through 13 of title 9, except that the court may set aside or limit any 
award that is found to violate limitations imposed by Federal statute. 

(h) Procedural guidelines 

Pursuant to the authority conferred under the Office of Federal Procurement 
Policy Act [41 U.S.C. 401 et seq.], the Administrator is authorized and directed, 
as may be necessary or desirable to carry out the provisions of this chapter, to 
issue guidelines with respect to criteria for the establishment, functions, and 
procedures of the agency boards (except for a board established by the Tennessee 
Valley Authority). 



B 



B 



348 Contract Disputes Act Appendix 



(Pub. L. No. 95-563, §8, Nov. 1, 1978, 92 Stat. 2385; Pub. L. No. 97-164, title 
I, §§156, 160(a)(15), Apr. 2, 1982, 96 Stat. 47, 48; Pub. L. No. 101-509, title V, 
§529 [title I, §104(d)(4)], Nov. 5, 1990, 104 Stat. 1427, 1447; Pub. L. No. 101- 
552, §6(b), Nov. 15, 1990, 104 Stat. 2746.) 

§608. Small claims 

(a) Accelerated disposition of appeals 

The rules of each agency board shall include a procedure for the expedited 
disposition of any appeal from a decision of a contracting officer where the 
amount in dispute is $10,000 or less. The small claims procedure shall be 
applicable at the sole election of the contractor. 

(b) Simplified rules of procedure 

The small claims procedure shall provide for simplified rules of procedure to 
facilitate the decision of any appeal thereunder. Such appeals may be decided by a 
single member of the agency board with such concurrences as may be provided 
by rule or regulation. 

(c) Time of decision 

Appeals under the small claims procedure shall be resolved, whenever 
possible, within one hundred twenty days from the date on which the contractor 
elects to utilize such procedure. 



(d) Finality of decision 

A decision against the Government or the contractor reached under the small 
claims procedure shall be final and conclusive and shall not be set aside except in 
cases of fraud. 

(e) Effect of decision 

Administrative determinations and final decisions under this section shall have 
no value as precedent for future cases under this chapter. 

(f) Review of requisite amount in controversy 

The Administrator is authorized to review at least every three years, 
beginning with the third year after November 1, 1978, the dollar amount defined 
in subsection (a) of this section as a small claim, and based upon economic 
indexes selected by the Administrator adjust that level accordingly. 
(Pub. L. No. 95-563, §9, Nov. 1, 1978, 92 Stat. 2387.) 



Contract Disputes Act 349 



§609. Judicial review of board decisions 

(a) AcUons in United States Claims Court; district court actions; time for 
filing 

(1) Excq)t as provided in paragraph (2), and in lieu of appealing the decision 
of the contracting officer under section 605 of this title to an agency board, a 
contractor may bring an action directly on the claim in the United States Claims 
Court, notwithstanding any contract provision, regulation, or rule of law to the 
contrary. 

(2) In the case of an action against the Tennessee Valley Authority, the 
contractor may only bring an action directly on the claim in a United States 
district court pursuant to section 1337 of title 28, notwithstanding any contract 
provision, regulation, or rule of law to the contrary. 

(3) Any action under paragraph (1) or (2) shall be filed within twelve months 
from the date of the receipt by the contractor of the decision of the contracting 
officer concerning the claim, and shall proceed de novo in accordance with the 
rules of the appropriate court. 

(b) Finality of board decision 

In the event of an api>eal by a contractor or the Government from a decision 
of any agency board pursuant to section 607 of this title, notwithstanding any 
contract provision, regulation, or rules of law to the contrary, the decision of the 
agency board on any question of law shall not be final or conclusive, but the 
decision on any question of fact shall be final and conclusive and shall not be set 
aside unless the decision is fraudulent, or arbitrary, or capricious, or so grossly 
erroneous as to necessarily imply bad faith, or if such decision is not supported by 
substantial evidence. 

(c) Remand or retention of case 

In any appeal by a contractor or the Government from a decision of an agency 
board pursuant to section 607 of this title, the court may render an opinion and 
judgement and remand the case for further action by the agency board or by the 
executive agency as appropriate, with such direction as the court considers just 
and proper. 

(d) Consolidation 

If two or more suits arising from one contract are filed in the United States 
Claims Court and one or more agency boards, for the convenience of parties or 
witnesses or in the interest of justice, the United States Claims Court may order 
the consolidation of such suits in that court or transfer any suits to or among the 
agency boards involved. 



B 



B 



350 Contract Disputes Act Appendix 



(e) Judgments as to fewer than all claims 

In any suit filed pursuant to this chapter involving two or more claims, 
counterclaims, cross-claims, or third-party claims, and where a portion of one 
such claim can be divided for purposes of decision or judgment, and in any such 
suit where multiple parties are involved, the court, whenever such action is 
appropriate, may enter a judgment as to one or more but fewer than all of the 
claims, portions thereof, or parties. 

(Pub. L. No. 95-563, §10, Nov. 1, 1978, 92 Stat. 2388; Pub. L. No. 97-164, title 
I, §§157, 160(a)(15), 161(10), Apr. 2, 1982, 96 Stat. 47-49.) 

§610. Subpena, discovery, and deposition 

A member of an agency board of contract appeals may administer oaths to 
witnesses, authorize depositions and discovery proceedings, and require by 
subpena the attendance of witnesses, and production of books and papers, for the 
taking of testimony or evidence by deposition or in the hearing of an appeal by the 
agency board. In case of contumacy or reiiisal to obey a subpena by a person who 
resides, is found, or transacts business within the jurisdiction of a United States 
district court, the court, upon application of the agency board through the 
Attorney General; or upon application by the board of contract appeals of the 
Tennessee Valley Authority, shall have jurisdiction to issue the person an order 
requiring him to appear before the agency board or a member thereof, to produce 
evidence or to give testimony, or both. Any failure of any such person to obey the 
order of the court may be punished by the court as a contempt thereof. 
(Pub. L. No. 95-563, §11, Nov. 1, 1978, 92 Stat. 2388.) 

§611. Interest 

Interest on amounts found due contractors on claims shall be paid to the 
contractor from the date the contracting officer receives the claim pursuant to 
section 605(a) of this title from the contractor until payment thereof. The interest 
provided for in this section shall be paid at the rate established by the Secretary of 
the Treasury pursuant to Public Law 92-41 (85 Stat. 97) for the Renegotiation 
Board. 
(Pub. L. No. 95-563, §12, Nov. 1, 1978, 92 Stat. 2389.) 

§612. Payment of claims 

(a) Judgments 

Any judgment against the United States on a claim under this chapter shall be 
paid promptly in accordance with the procedures provided by section 1304 of title 
31. 



Contract Disputes Act 351 



(b) Monetary awards 

Any monetary award to a contractor by an agency board of contract appeals 
shall be paid promptly in accordance with the procedures contained in subsection 
(a) of this section. 

(c) Reimbursement 

Payments made pursuant to subsections (a) and (b) of this section shall be 
reimbursed to the fund provided by section 1304 of title 31 by the agency whose 
appropriations were used for the contract out of available funds or by obtaining 
additional appropriations for such purposes. 

(d) Tennessee Valley Authority 

(1) Notwithstanding the provisions of subsection (a) through (c) of this 
section, any judgment against the Tennessee Valley Authority on a claim under 
this chapter shall be paid promptly in accordance with the provisions of section 
831h(b)oftitlel6. 

(2) Notwithstanding the provisions of subsection (a) through (c), any monetary 
award to a contractor by the board of contract appeals for the Tennessee Valley 
Authority shall be paid in accordance with the provisions of section 831h(b) of 
title 16. 

(Pub. L. No. 95-563, §13, Nov. 1, 1978, 92 Stat. 2389.) 

§613. Separability 

If any provision of this chapter, or the application of such provision to any 
persons or circumstances, is held invalid, the remainder of this chapter, or the 
application of such provision to persons or circumstances other than those to 
which it is held invalid, shall not be affected thereby. 
(Pub. L. No. 95-563, §15, Nov. 1, 1978, 92 Stat. 2391.) 

* ♦ ♦ ♦ 



Title 28, U.S. Code 

§1346. United States as defendant 

(a) The district courts shall have original jurisdiction, concurrent with the 
United States Claims Court, of: 

(1) Any civil action against the United States for the recovery of any internal- 
revenue tax alleged to have been erroneously or illegally assessed or collected, or 
any penalty claimed to have been collected without authority or any sum alleged 
to have been excessive or in any manner wrongfully collected under the internal- 
revenue laws; 



B 



B 



352 Contract Disputes Act Appendix 



(2) Any other civil action or claim against the United States, not exceeding 
$10,000 in amount, founded either upon the Constitution, or any Act of Congress, 
or any regulation of an executive department, or upon any express or implied 
contract with the United States, or for liquidated or unliquidated damages in cases 
not sounding in tort, except that the district courts shall not have jurisdiction of 
any civil action or claim against the United States founded upon any express or 
implied contract with the United States or for liquidated or unliquidated damages 
in cases not sounding in tort which are subject to sections 8(g)(1) and 10(a)(1) of 
the Contract Disputes Act of 1978. or the purpose of this paragraph, an express 
or implied contract with the Army and Air Force Exchange Service, Navy 
Exchanges, Marine Corps Exchanges, Coast Guard Exchanges, or Exchange 
Councils of the National Aeronautics and Space Administration shall be 
considered an express or implied contract with the United States. 

♦ ♦ * * 



§1491. Claims against United States generally; actions involving 
Tennessee Valley Authority 

(a)(1) The United States Claims Court shall have jurisdiction to render 
judgment upon any claim against the United States founded either upon the 
Constitution, or any Act of Congress or any regulation of an executive 
department, or upon any express or implied contract with the United States, or for 
liquidated or unliquidated damages in cases not sounding in tort. For the purpose 
of this paragraph, an express or implied contract with the Army and Air Force 
Exchange Service, Navy Exchanges, Marine Corps Exchanges, Coast Guard 
Exchanges, or Exchange Councils of the National Aeronautics and Space 
Administration shall be considered an express or implied contract with the United 
States. 

(2) To provide an entire remedy and to complete the relief afforded by the 
judgment, the court may, as an incident of and collateral to any such judgment, 
issue orders directing restoration to office or position, placement in appropriate 
duty or retirement status, and correction of applicable records, and such orders 
may be issued to any appropriate official of the United States. In any case within 
its jurisdiction, the court shall have the power to remand appropriate matters to 
any administrative or executive body or official with such direction as it may 
deem proper and just. The Claims Court shall have jurisdiction to render 
judgment upon any claim by or against, or dispute with, a contractor arising under 
section 10(a)(1) of the Contract Disputes Act of 1978. 

(3) To afford complete relief on any contract claim brought before the contract 
is awarded, the court shall have exclusive jurisdiction to grant declaratory 
judgments and such equitable and extraordinary relief as it deems proper, 
including but not limited to injunctive relief. In exercising this jurisdiction, the 
court shall give due regard to the interests of national defense and national 
security. 

(b) Nothing herein shall be construed to give the United States Claims Court 
jurisdiction of any civil action within the exclusive jurisdiction of the Court of 
International Trade, or of any action against, or founded on conduct of, the 
Tennessee Valley Authority, or to amend or modify the provisions of the 



Contract Disputes Act 353 



Tennessee Valley Authority Act of 1933 with respect to actions by or against the 
Authority. 

(June 25, 1948, ch. 646, 62 Stat. 940; July 28, 1953, ch. 253, §7, 67 Stat. 226; 
Sept. 3, 1954, ch. 1263, §44(a), (b), 68 Stat. 1241; July 23, 1970, Pub. L. No. 
91-350, §l(b), 84 Stat. 449; Aug. 29, 1972, Pub. L. No. 92-415, §1, 86 Stat. 
652; Nov. 1, 1978, Pub. L. No. 95-563, §14(i), 92 Stat. 2391; Oct. 10, 1980, 
Pub. L. No. 96-417, tide V, §509, 94 Stat. 1743; Apr. 2, 1982, Pub. L. No. 97- 
164, title I, §133(a), 96 Stat. 39.) 

« « « * 

§2401. Time for commencing action against United States 

(a) Except as provided by the Contract Disputes Act of 1978, every civil 
action commenced against the United States shall be barred unless the complaint is 
filed within six years after the right of action first accrues. The action of any 
person under legal disability or beyond the seas at the time the claim accrues may 
be commenced within three years after the disability ceases. 

(b) A tort claim against the United States shall be forever barred unless it is 
presented in writing to the appropriate Federal agency within two years after such 
claim accrues or unless action is begun within six months after the date of 
mailing, by certified or registered mail, of notice of final denial of the claim by 
the agency to which it was presented. 

(June 25, 1948, ch. 646, 62 Stat. 971; Apr. 25, 1949, ch. 92, §1, 63 Stat. 62; 
Sept. 8, 1959, Pub. L. No. 86-238, §1(3), 73 Stat. 472; July 18, 1966, Pub. L. 
No. 89-506, §7, 80 Stat. 307; Nov. 1, 1978, Pub. L. No. 95-563, §14(b), 92 Stat. 
2389.) 

♦ ♦ ♦ * 

§2414. Payment of judgments and compromise settlements 

Except as provided by the Contract Disputes Act of 1978, payment of final 
judgments rendered by a district court or the Court of International Trade against 
the United States shall be made on settlements by the General Accounting Office. 
Payment of final judgments rendered by a State or foreign court or tribunal 
against the United States, or against its agencies or officials upon obligations or 
liabilities of the United States, shall be made on settlements by the General 
Accounting Office after certification by the Attorney General that it is in the 
interest of the United States to pay the same. 

Whenever the Attorney General determines that no appeal shall be taken from 
a judgment or that no further review will be sought from a decision affirming the 
same, he shall so certify and the judgment shall be deemed final. 

Except as otherwise provided by law, compromise settlements of claims 
referred to the Attorney General for defense of imminent litigation or suits against 
the United States, or against its agencies or officials upon obligations or liabilities 
of the United States, made by the Attorney General or any person authorized by 
him, shall be settled and paid in a manner similar to judgments in like causes and 



B 



354 Contract Disputes Act Appendix 



appropriations or flinds available for the payment of such judgments are hereby 
made available for the payment of such compromise settlements. 
(June 25, 1948, ch. 646, 62 Stat. 974; Aug. 30, 1961, Pub. L. No. 87-187, §1, 
75 Stat. 415; Nov. 1, 1978, Pub. L. No. 95-563, §14(d), 92 Stat. 2390; Oct. 10, 
1980, Pub. L. No. 96-417, title V, §512, 94 Stat. 1744.) 

§2510. Referral of cases by Comptroller General 

(a) The ComptroUer General may transmit to the United States Claims Court 
for trial and adjudication any claim or matter of which the Claims Court might 
take jurisdiction on the voluntary action of the claimant, together with all 
vouchers, papers, documents, and proofs pertaining thereto. 

(b) The Claims Court shall proceed with the claims or matters so referred as 
in other cases pending in such Court and shall render judgment thereon. 

(June 25, 1948, ch. 646, 62 Stat. 977; July 28, 1953, ch. 253, §11, 67 Stat. 227; 
Sept. 3, 1954, ch. 1263, §47(b), 68 Stat. 1243; Nov. 1, 1978, Pub. L. No. 95- 
563, §14(h)(l), (2)(A), 92 Stat. 2390; Apr. 2, 1982, Pub. L. No. 97-164, title I, 
§139(i)(l), 96Stat. 43.) 

« ♦ ♦ ♦ 



§2517. Payment of judgments 

(a) Except as provided by the Contract Disputes Act of 1978, every final 
judgment rendered by the United States Claims Court against the United States 
shall be paid out of any general appropriation therefor, on presentation to the 
General Accounting Office of a certification of the judgment by the clerk and chief 
judge of the court. 

(b) Payment of any such judgment and of interest thereon shall be a full 
discharge to the United States of all claims and demands arising out of the matters 
involved in the case or controversy, unless the judgment is designated a partial 
judgment, in which event only the matters described therein shall be discharged. 
(June 25, 1948, ch. 646, 62 Stat. 979; Nov. 1, 1978, Pub. L. No. 95-563, §14(e), 
(f), 92 Stat. 2390; Apr. 2, 1982, Pub. L. No. 97-164, title I, §139(k), 96 Stat. 
43.) 

* ♦ ♦ ♦ 



TitleSl, U.S. Code 

§1304. Judgments, awards, and compromise settlements 

(a) Necessary amounts are appropriated to pay final judgments, awards, 
compromise settlements, and interest and costs specified in the judgments or 
otherwise authorized by law when- 

(1) payment is not otherwise provided for; 

(2) payment is certified by the Comptroller General; and 

(3) the judgment, award, or settlement is payable-- 



Contract Disputes Act 355 



(A) under section 2414, 2517, 2672, or 2677 of Utle 28; 

(B) under section 3723 of this title; 

(C) under a decision of a board of contract appeals; or 

(D) in excess of an amount payable from the appropriations of an 
agency for a meritorious claim under section 2733 or 2734 of title 10, section 
715 of title 32, or section 203 of the National Aeronautics and Space Act of 
1958 (42 U.S.C. 2473). 

(b)(1) Interest may be paid from the appropriation made by this section- 

(A) on a judgment of a district court, only when the judgment becomes final 
after review on appeal or petition by the United States Government, and then only 
from the date of filing of the transcript of the judgment with the Comptroller 
General through the day before the date of the mandate of affirmance; or 

(B) on a judgment of the Court of Appeals for the Federal Circuit or the 
United States Claims Court under section 2516(b) of title 28, only from the date of 
filing of the transcript of the judgment with the ComptroUer General through the 
day before the date of the mandate of affirmance. 

(2) Interest payable under this subsection in a proceeding reviewed by the 
Supreme Court is not allowed after the end of the term in which the judgment is 
affirmed. 
(Pub. L. No. 97-258, §§1, 2(m)(2), Sept. 13, 1982, 96 Stat. 917, 1062.) 



Q 



OFPP Proposed Board Rules 



357 



PROPOSED UNIFORM RULES OF PROCEDURE FOR 
BOARDS OF CONTRACT APPEALS 

Office of Federal Procurement Policy 

44 Fed. Reg. 5219 (January 25, 1979) 



[ano-oi-M] 

UNIFOIM RULES Of rtOCEDURE FOR BOARDS 
OF CONTRACT APPEALS 

Invifotion for Public Comnwnt 

AGENCY: Office of Federal Procure- 
ment Policy (OFPP). Office of Man- 
agement and Budget. 

ACTION: Notice of proposed direction 
regarding Uniform Rules of Procedure 
for Boards of Contract Appeals. 

SUMMARY: This proposed direction 
would instruct the General Services 
Administration and the Department of 
Defense to incorporate changes re- 
garding rules of Boards of Contract 
Appeals and related material into the 
Federal Procurement Regulations 
(FPR) and Defense Acquisition Regu- 
lations (DAR). 

On November 1, 1978, the President 
signed into law Pub. L. 95-563^ the 
"Contract Disputes Act of 1978." 

That Act. among other things, re- 
quires changes to the Rules of Proce- 
dure currently in use by the Boards of 
Contract Appeals of the procuring 
agencies, as well as certain other 
changes in contract clauses and pro- 
curement regulations. The proposed 
regulations set forth below incorpo- 
rate the changes required by Pub. L. 
95-563. as well as certain other im- 
provements. The proposed Rules of 
Procedure are to be adopted uniformly 
by all Boards of Contract Appeals. 

DATE: Comments must be received on 
or before February 23. 1979. 

ADDRESS: Comments are to be sub- 
mitted to the Office of Federal Pro- 
curement Policy. OMB. 726 Jackson 
Place. NW., Room 9025. Washington, 
D.C. 20503. 

FOR FURTHER INFORMATION 
CONTACT: 

Mr. Owen Blmbaum. Deputy Asso- 
ciate Administrator for Acquisition 



Law (202) 395-3455. 

Lester A. Fettic. 
Administrator. 

Proposed Rules or I*rocedures 

preface to rules 

1. Jurisdiction for considering ap- 
peals 

The Board of Contract Ap- 
peals (referred to herein as "the 
Board") shall consider and determine 
appeals from decisions of contracting 
officers relating to contracts awarded 

by (i) the (executive agency) or 

(ii) any other executive agency when 
such agency or the Administrator for 
Federal Procurement Policy has desig- 
nated the Board to decide the appeal. 

2. Organization and location of the 
Board 

(a) The Board's address is ( ). 

(b) The Board consists of a Chair- 
man. (Vice Chairman), and other 
members, all of whom are attorneys at 
law duly licensed by any state, com- 
monwealth, territory, or the District 
of Columbia. In general, the appeals 
are assigned to a panel of at least (~) 
members who decide the case by a ma- 
jority vote. 

3. Board of Contract Appeals proce- 
dure 

(a) Time, computation, and exten- 
sions— 

(1) Where possible, procedural ac- 
tions should be taken in less time than 
the maximum time allowed. Where ap- 
propriate and justified, however, ex- 
tensions of time will be granted. All re- 
quests for extensions of time shall be 
in writing. 

(2) In computing any period of time, 
the day of the event from which the 
designated period of time begins to 
run shall not be included, but the last 
day of the period shall be included 
unless it is a Saturday. Sunday, or a 
legal holiday, in which event the 
period shall run to the end of the next 
business day. 

Preliminary Procedures 

1. Appeals, How Taken 
(a) Notice of an appeal must be In 
writing and together with two copies 



B 



358 Contract Disputes Act Appendix 



B 



must be filed with the contracting of- 
ficer from whose decision the appeal is 
taken. The notice of appeal must be 
mailed or otherwise filed within 
ninety (90) days from the date of re- 
ceipt of a contracting officer's final de- 
cision. 

(b) Where the contractor has sub- 
mitted a claim of $50,000 or less to the 
contracting officer and has requested 
a written final decision within sixty 
(60) days from receipt of such request, 
and the contracting officer has not 
done so. the contractor may file a writ- 
ten notice of appeal directly with the 
Board, citing the failure of the con- 
tracting officer to issue a decision. 



OFPP Proposed Board Rules 



359 



5220 



(c) Where the contractor has sub- 
mitted a claim in excess of $50,000 to 
the contracting officer and the con- 
tracting officer has failed to issue a 
final decision within a reasonable 
time, the contractor may file a written 
notice of appeal directly with the 
Board, citing the failure to issue a de- 
cision. 

(d) Upon docketing of appeals filed 
pursuant to (b) or (c) hereof, the 
Board may, on motion of either party. 
or on its own motion, stay further pro- 
ceedings pending issuance of a final 
decision by the contracting officer 
within such period of time as is deter- 
mined by the Board. 

2. Notice 0/ Appeal, Contents of 

A notice of appeal should indicate 
that an appeal is being taken and 
should identify the contract (by 
number), the department and agency 
or bureau Involved in the dispute, and 
the decision from which the appeal is 
taken. The notice of appeal should be 
signed by the appellant (the contrac- 
tor making the appeal), or by the ap- 
pellant's duly authorized representa- 
tive or attorney. The complaint re- 
ferred to in Rule 6 may be filed with 
the notice of appeal, or the appellant 
may designate the notice of appeal as 
a complaint, if it otherwise fulfills the 
requirements of a complaint. 

3. Forwarding of appeals 

When a notice of appeal in any form 
has been received by the contracting 
officer he shall endorse thereon the 
date of mailing (or date of receipt, if 
otherwise conveyed) and within 10 
days shall forward it to the Board. 
Following receipt by the Board of the 
original notice of an appeal (whether 
through the contracting officer or oth- 
erwise), the appellant and contracting 
officer will be promptly advised of its 
receipt and the appellant will be fur- 
nished a copy of these rules. 

4. Preparation, Content, Organiza- 
tion, Forwarding, and StatiLS of 
Appeal File 

(a). Duties of Contracting Officer- 
Within 30 days of receipt of an appeal, 
or notice that an appeal has been 
filed, the contracting officer shall as- 
semble and transmit to the Board 



(tirough the ) an appeal file con- 
sisting of all documents pertinent to 
the appeal, including: 

(1) The decision from which the 
appeal is taken; 

(2) The contract including specifica- 
tions and pertinent amendments, 
plans and drawings: 

(3) All correspondence between the 
parties pertinent to the appeal, includ- 
ing the letter or letters of claim in re- 
sponse to which the decision was 
issued: 

(4) Transcripts of any testimony 
taken during the course of proceed- 
ings, and affidavits or statements of 
any witnesses on the matter in dispute 
made prior to the filing of the notice 
of appeal with the Board: and 

(5) Any additional information con- 
sidered pertinent. 

Within the same time above speci- 
fied the (3/M) shall furnish the appel- 
lant a copy of each document he 
transmits to the Board, except those 
in subparagraph (a)(2) above. As to 
the latter, a list fumisheck appellant 
indicating specific contractual docu- 
ments transmitted will suffice. 

(b) Duties of the Appellant-Within 
30 days after receipt of a copy of the 
appeal file assembled by the contract- 
ing officer, the appellant shall trans- 
mit to the Board any documents not 
contained therein which he considers 
pertinent to the appeal, and furnish 
two copies of such documents to the 
"uovemment trial attorney. 

(c) Organization of Appeal Pile- 
Documents in the appeal file may be 
originals or legible facsimile or au- 
thenticated copies, and shall be ar- 
ranged in chronological order where 
practicable, numbered sequentially, 
tabbed, and indexed to identify the 
contents of the file. 

(d) Lengthy Documents— Upon re- 
quest by either party, the Board may 
waive the requirement to furnish to 
the other party copies of bulky, 
lengthy, or out-of-size documents in 
the appeal file when inclusion would 
be burdensome. At the time a party 
files with the Board a document as to 
which such a waiver has been granted 
he shall notify the other party that 



B 



360 



Contract Disputes Act Appendix 



B 



the document or a copy is available for 
Inspection at the offices of the Board 
or of the party filing same. 

(e) Status of Documents in Appeal 
File— Documents contained In the 
appeal file are considered, without fur- 
ther action by the parties, as part of 
the record upon which the Board will 
render its decision. However, a party 
may object to consideration of a par- 
ticular document or all documents in 
advance of hearing or of settling the 
record in the event there is no hearing 
on the appeal. If such objection is 
made, the Board will rule upon admis- 
sibility Into the record as evidence in 
accordance with Rules 13 and 20 
hereof. 

5. Dismissal for Lack of Jurisdiction 
Any motion addressed to the juris- 
diction of the Board shall be promptly 
filed. Hearing on the motion shall be 
afforded on application of either 
party. However, the Board may deter- 
mine that its decision on the motion 
will be deferred pending hearing on 
both the merits and the motion. The 
Board shall have the right at any time 
and on its own motion to raise the 
issue of its jurisdiction to proceed with 
a particular case, and shall do so by an 
appropriate order, affording the par- 
ties an opportunity to be heard there- 
on. 

6. Pleadings 

(a) Appellant— Within 30 days after 
receipt of notice of docketing of the; 
appeal, the appellant shall file with 
the Board an original and two copies 
of a complaint setting forth simple. 
concise and direct statements of each 
of Its claims. Appellant shall also set 
forth the basis, with appropriate refer- 
ence to contract provisions, of each 
claim and the dollar amount claimed. 
The pleading shall fulfill the generally 
recognized requirements of a com- 
plaint, although no particular form or 
formality is required. Upon receipt of 
the complaint, the Board shall serve a 
copy of It upon the Government. 
Should the complaint not be received 
within 30 days, appellant's claim and 



appeal may, if in the opinion of the 
Board the issues before the Board are 
sufficiently defined, be deemed to set 
forth its complaint and the Govern- 
ment shall be so notified, 

(b) Government— Within 30 days 
from receipt of the complaint, or the 
aforesaid notice from the Board, the 
Government shall prepare and file 
with the Board an original and two 
cot>ies of an answer thereto. The 
answer shall set forth simple, concise 
and direct statements of Govern- 
ment's defenses to each claim asserted 
by appellant. This pleading shall ful- 
fill the generally recognized require- 
ments of an answer, and shall set 
forth any affirmative defenses or 
counter-claims as appropriate. Upon 
receipt of the answer, the Board shall 
serve a copy upon appellant. Should 
the answer not be received within 30 
days, the Board may. In Its discretion, 
enter a general denial on behalf of the 
Government, and the appellant shall 
be so notified. 

7. Amendments of Pleadings or 
Record 

The Board upon its own initiative or 
upon application by a party may. in its 
discretion, order a party to make a 
more definite statement of the com- 
plaint or answer, or to reply to an 
answer. 

The Board may. In Its discretion, and 
within the proper scope of the appeal, 
permit either party to amend its 
pleading upon conditions fair to both 
parties. When issues within the proper 
scope of the appeal, but not raised by 
the pleadings or the documentation 
described in Rule 4, tried by express or 
implied consent of the parties, or by 
permission of the Board, they shall be 
treated in all respects as if they had 
been raised therein. In such instances, 
motions to amend the pleadings to 
conform to the proof may be entered, 
but are not required. If evidence Is ob- 
jected to at a hearing on the ground 
that It is not within the issues raised 
by the pleadings or the Rule 4 docu- 
mentation (which shall be deemed 
part of the pleadings for this purpose). 



OFPP Proposed Board Rules 
5221 



361 



it may be admitted within the proper 
scope of the appeal, provided, howev- 
er, that the objecting party may be 
granted a continuance if necessary to 
enable it to meet such evidence. 

8. Hearing Election 

After filing of Government's answer 
or notice from the Board that it has 
entered a general denial on behalf of 
the Government, each party shall 
advise whether it desires a hearing as 
prescribed in Rules 17 through 25, or 
whether, it elects to submit its case on 
the record without a hearing, as pre- 
scribed in Rule 11. 

9. Prehearing Bri^s 

Based on an examination of the doc- 
umentation described in Rule 4, the 
pleadings, and its determination of 
whether the arguments and authori- 
ties addressed to the Issues are ade- 
quately set forth therein, the Board 
may, in its discretion, require the par- 
ties to submit prehearing briefs in any 
case in which a hearing has been elect- 
ed pursuant to Rule 8. If the Board 
does not require prehearing briefs 
either party may. in its discretion and 
upon appropriate and sufficient notice 
to the other party, furnish a prehear- 
ing brief to the Board. In any case 
where a prehearing brief is submitted, 
it shall be furnished so as to be re- 
ceived by the Board at least 15 days 
prior to the date set for hearing, and a 
copy shall simultaneously be fur- 
nished to the other party as previously 
arranged. 

10. Prehearing or Presubmission 
Conference. 

Whether the case is to be submitted 
pursuant to Rule 11, or heard pursu- 
ant to Rules 17 through 25, the Board 
may upon its own initiative, or upon 
the application of either party, call 
upon the parties to appear before an 
Administrative Judge or examiner of 
the Board for a conference to consid- 
er 

(a) Simplification or clarification of 
the issues; 

(b) The possibility of obtaining stip- 
ulations, admissions, agreements on 
documents, and understandings on 
matters already of record, or similar 
agreements that will avoid unneces- 



sary proof; 

<c) Limitation of the number of 
expert witnesses, or avoidance of simi- 
lar cumulative evidence; 

(d) The possibility of agreement dis- 
posing of any or all of the issues in dis- 
pute; and 

(e) Such other matters as may aid in 
the disposition of the appeal. 

The results of the conference shall 
be reduced to writing by the Adminis- 
trative Judge or examiner and this 
writing shall thereafter constitute 
part of the record. 

11. Submission Without a Hearing 
Either party may elect to waive a 

hearing and to submit Its case upon 
the record before the Board, as settled 
pursuant to Rule 13. Submission of a 
case without hearing does not relieve 
the parties from the necessity of prov- 
ing the facts supporting their allega- 
tions or defenses. Affidavits, deposi- 
tions, admissions, answers to Interrog- 
atories, and stipulations may be em- 
ployed to supplement other docmen- 
Ury evidence in the Board record. The 
Board may permit such submission to 
be supplemented by oral argument 
(transcribed if requested), and by 
briefs arranged in accordance with 
Rule 23. 

12. Optional SMALL CLAIMS (EX- 
PEDITED) and ACCELERATED Pro- 
cedures. These procedures are availa- 
ble solely at the election of the appel- 
lant 

12.1. Elections to Ultilize SMALL 
CLAIMS {EXPEDITED) and ACCEL- 
ERATED Procedure. 

(a) In appeals where the amount in 
dispute of $10,000 or less, the appel- 
lant may elect to have the appeal 
processed under a SMALL CLAIMS 
(EXPEDITED) procedure requiring 
decision of the appeal, whenever possi- 
ble, within 120 days after the Board 
receives written notice of the appel- 
lant's election to utilize this proce- 
dure. The details fo this procedure 
appear in section 12.2 of this Rule. An 
appellant may elect the ACCELER- 
ATED procedure rather than the 
SMALL CLAIMS (EXPEDITED) pro- 
cedure for any appeal eligible for the 
SMALL CLAIMS (EXPEDITED) pro- 



B 



362 



Contract Disputes Act Appendix 



I 



cedure. 

(b) In appeals where the amount In 
dispute is $50,000 or less, the appellant 
may elect to have the appeal processed 
under an ACCELERATED procedure 
requiring decision of the appeal, when- 
ever possible, within 180 days after the 
Board receives written notice of the 
appellant's election to utilize this pro- 
cedure. The details of this procedure 
appear In section 12.3 of this Rule. 

(c) The appellant's election of either 
the SMALL CLAIMS (EXPEDITED) 
procedure or the ACCELERATED 
procedure may be made either in his 
notice of appeal or by other written 
notice at any time thereafter. 

(d) In deciding whether the SMALL 
CLAIMS (EXPEDITED) procedure or 
the ACCELERATED procedure Is ap- 
plicable to a given appeal, the Board 
shall determine the amount in dispute 
by adding the amount claimed by the 
appellant against the Government to 
the amount claimed by Government 
against the appellant. If either party 
making a claim against the other 
party does not otherwise state in writ- 
ing the amount of its claim, the 
amount claimed by such party shall be 
the maximum amount which such 
party represents in writing to the 
Board that it can reasonably expect to 
recover against the other. 

12.2 The SMALL CLAIMS (EXPE- 
DITED) Procedure. 

(a) This procedure shall apply only 
to appeals where the amount In dis- 
pute is $10,000 or less as to which the 
appellant has elected the SMALL 
CLAIMS (EXPEDITED) procedure. 

(b) In cases proceeding under the 
SMALL CLAIMS (EXPEDITED) pro- 
cedure, the following time periods 
shall apply: (1) Within ten days from 
the respondent's first receipt from 
either the appellant or the Board of a 
copy of the appellant's notice of elec- 
tion of the SMALL CLAIMS (EXPE- 
DITED) procedure, the respondent 
shall send the Board a copy of the 
contract, the contracting officer's final 
decision, and the appellant's claim 
letter or letters. If any; (2) within 15 



days after the Board has acknowl- 
edged receipt of the notice of election, 
either party desiring an oral hearing 
shall so Inform the Board. If either 
party requests an oral hearing, the 
Board shall promptly schedule such a 
hearing for a mutually convenient 
time consistent with administrative 
due process and the 120-day limit for a 
decision, at a place determined under 
Rule 17. If a hearing Is not requested 
by either party within the time pre- 
scribed by this Rule, the appeal shall 
be deemed to have been submitted 
under Rule 1 1 without a hearing. 

(c) In cases proceeding under the 
SMALL CLAIMS (EXPEDITED) pro- 
cedure, pleadings, discovery, and other 
prehearing cu:tivity will be allowed 
only as consistent with the require- 
ment to conduct the hearing on the 
date scheduled or. If no hearing Is 
scheduled, to close the record on a 
date that will allow decision within 
the 120 limit. The Board, in Its discre- 
tion, may shorten time periods pre- 
scribed elsewhere in these Rules as 
necessary to enable the Board to 
decide the appeal within 120 days 
after the Board has received the ap- 
pellant's notice of election of the 
SMALL CLAIMS (EXPEDITED) pro- 
cedure. In so doing the Board may re- 
serve whatever time up to 30 days it 
considers necessary for preparation of 
the decision. 

(d) Written decision by the Board In 
cases processed under the SMALL 
CLAIMS (EXPEDITED) procedure 
will be short and contain only sum- 
mary findings of fact and conclusions. 
Decisions will be rendered for the 
Board by a single Administrative 
Judge. If there has been a hearing, the 
Administrative Judge presiding at the 
hearing may, in his discretion, at the 
conclusion of the hearing and after en- 
tertaining such oral arguments as he 
deems appropriate, render on the 
record oral summary findings of fact, 
conclusions, and a decision of the 
Appeal. Whenever such an oral deci- 
sion is rendered, the Board will subse- 



OFPP Proposed Board Rules 



363 



5222 



quently furnish the parties a typed 
copy of such oral decision for record 
and payment purposes and to estab- 
lish the date of commencement of the 
period for filing a motion for reconsid- 
eration under Rule 29. 

(e) Decisions of the Board under the 
SMALL CLAIMS (EXPEDITED) pro- 
cedure will not be published, will have 
no value as precedents, and, in the ab- 
sence of fraud, cannot be appealed. 

12.3. The ACCELERATED Procedure 

(a) This procedure shall apply only 
to appeals where the amount in dis- 
pute is $50,000 or less as to which the 
appellant has made the requisite elec- 
tion. 

(b) In cases proceeding under the 
ACCELERATED, procedure, the par- 
ties are encouraged, to the extent pos- 
sible consistent with adequate presen- 
tation of their factual and legal posi- 
tions, to waive pleadings, discovery, 
and briefs. The Board, in its discre- 
tion, may shorten time periods pre- 
scribed elsewhere In these Rules as 
necessary to enable the Board to 
decide the appeal within 180 days 
after the Board h^ received the ap- 
pellant's notice of election of the AC- 
CELERATED procedure, and may re- 
serve 30 days for preparation of the 
decision, 

(c) Written decisions by the Board in 
cases processed under the ACCELER- 
ATED procedure will normally be 
short and contain only summary find- 
ings of act and conclusions. Decisons 
will be rendered for the board by a 
single Administrative Judge with the 
concurrence of the Chairman or a Vice 
Chairman or other disignated Admin- 
istrative Judge, or by a majority 
among these two and an additional 
designated member in case of disagree- 
ment. Alternatively, In cases where 
the amount in dispute is $10,000 or 
less as to which the ACCELERATED 
procedure has been elected and in 
which there has been a hearing, the 
single Administrative Judge presiding 
at the hearing may, with the concur- 
rence of both parties, at the conclu- 
sion of the hearing and after enterain- 
Ing such oral arguments as he deems 



appropriate, render on the record oral 
summary findings of fact, conclusions, 
and a decision of the appeal. When- 
ever such an oral decision is rendered, 
the Board will subsequently furnish 
the parties a typed copy of such oral 
decison for record and payment pur- 
poses and to establish the date of com- 
mencement of the period for filing a 
motion for reconsderation under Rule 
29. 

12.4. Motions for Reconsideration in 
Rule 12 cases 

Motions for Reconsideration of cases 
decided under either the SMALL 
CLAIMS (EXPEDITED) procedue or 
the ACCELERATED procedure need 
not be decided within the time periods 
prescribed by this Rule 12 for the Ini- 
tial decision of the appeal, but all such 
motions shall be processed and decid- 
ed rapidly so as to fulfill the intent of 
this Rule. 

13. Settling the -Record 

(a) The record upon which the 
Board's decision will be rendered con- 
sists of the appeal file described in 
Rule 4 and, to the extent the following 
items have been filed, pleadings, pre- 
hearing conference memoranda or 
orders, prehearing briefs, depositions 
or interrogatories received in evidence, 
admissions, stipulations, transcripts of 
conferences and hearings, hearing ex- 
hibits, posthearing briefs, and docu- 
ments which the board has specifically 
designated be made a part of the 
record. The record will, at all resona- 
ble times, be available for inspection 
by the parties at the office of the 
Board. 

(b) Except as the Board may other- 
wise order in its discretion, no proof 
shall be received In evidence after 
completion of an oral hearing or. in 
cases submitted on the record, after 
notification by the Board that the 
case is ready for decision. 

(c) The weight to be attached to any 
evidence of record will rest within the 
sound discretion of the Board. The 
Board may in any case require either 
party, with appropriate notice to the 
other party, to submit additional evi- 
dence on any matter relevant to the 



D 



364 



Contract Disputes Act Appendix 



B 



appeal. 
14. Discovery— Depositions 

(a) Genersd Policy and Protective 
Orders— The parties are encouraged to 
engage in voluntary discovery proce- 
dures. In connection with any deposi- 
tion or other discovery procedure, the 
board may make any order required to 
protect a party or person from annoy- 
ance, embarrassment, or undue burden 
or expense. Those orders may include 
limiUtions on the scope, method, time 
and place for discovery, and provisions 
for protecting the secrecy of confiden- 
tial Information or documents. 

(b) When Depositions Permitted— 
After an appeal has been docketed and 
complaint fUed. the parties may mutu- 
ally agree to. or the Board may, upon 
application of either party, order the 
taking of testimony of any person by 
deposition upon oral examination or 
written Interrogatories before any offi- 
cer authorized to administer oaths at 
the place of examination, for use as 
evidence or for purpose of discovery. 
The application for order shall specify 
whether the purpose of the deposition 
is discovery or for use as evidence. 

(c) Orders on Depositions— The time, 
place, and manner of taking deposi- 
tions shall be as mutually agreed by 
the parties, or falling such agreement, 
governed by order of the Board. 

(d) Use as Evidence— No testimony 
taken by depositions shall be consid- 
ered as part of the evidence In the 
hearing of an appeal until such testi- 
mony is offered and received in evi- 
dence at such hearing. It will not ordi- 
narily be received In evidence if the 
deponent can testify at the hearing. In 
such Instances, however, the deposi- 
tion may be used to contradict or im- 
peach the testimony of the deponent 
given at the hearing. In cases submit- 
ted on the record, the Board may. in 
its discretion, receive depositions to 
supplement the record, 

(e) Expenses— Each party shall bear 
Its own expenses associated with the 
teklng of any deposition. 

(f ) Subpoenas— Where appropriate, a 
party may request the Issuance of a 
subpoena under the provisions of Rule 



21. 

15. Interrogatories to Parties, Admis- 
sion of Facts, and Production and In- 
spection of Documents 

(a) Interrogatories to parties— After 
an appeal has been filed with the 
Board, a party may serve on the other 
party written Interrogatories to be an- 
swered separately in writing, signed 
under oath and returned within 30 
days. Upon timely objection by the 
party, the Board will determine the 
extent to which the interrogatories 
will be permitted. 

<b) Admission of facts— After an 
appeal has been filed with the Board, 
a party may serve upon the other 
party a request for the admission of 
specified facts. Within 30 days after 
service, the party served shall answer 
each requested fact or file objections 
thereto. The factual propositions set 
out In the request shall be deemed ad- 
mitted upon the failure of a party to 
respond to the request for admission. 

(c) Production and inspection of doc- 
uments—Upon motion of any party 
showing good cause therefor, and 
upon notice, the Board may order the 
other party to produce and permit the 
Inspection and copying or photograph- 
ing of any documents or objects, not 
privileged, which are reasonably calcu- 
lated to lead to the discovery of admis- 
sible evidence. If the parties cannot 
agree thereon, the Board shall specify 
terms and conditions In making the In- 
spection and taking the copies and 
photographs. 

16. Service of Papers Other than Sub- 
poenas 

Papers shall be served personally or 
by mail, addressed to the party upon 
whom service is to be made. Copies of 
complaints, answers and simultaneous 
briefs shall be filed directly with the 
Board. The party filing any other 
paper with the Board shall send a 
copy thereof to the opposing party, 
noting on the paper filed with the 
Board that a copy has been so fur- 
nished. Subpoenas shall be served as 
provided in Rule 21. 



OFPP Proposed Board Rules 



365 



5223 



Hearings 

17. Where and When Held 
Hearings will ordinarily be held in 

he Washington. D.C. area, however, 
pon timely request and for good 
ause. the Board may set the hearing 
t another location. Hearings will be 
cheduled at the discretion of the 
Joard with due consideration to the 
egular order of appeals and other per- 
inent factors. On request or motion 
>y either party and for good cause, the 
Board may. in its discretion, advance a 
learing. 

18. Notice of Hearings 

The parties shall be given at least 15 

lays notice of the time and place set 

or hearings. In scheduling hearings, 

he Board will consider the desires of 

he parties and the requirement for 

lust and inexpensive determination of 

appeals without unnecessary delay. 

Notices of hearing shall be promptly 

acknowledged by the parties. 

19. Unexcused Absence of a Party 
The unexcused absence of a party at 

the time and place set for hearing will 
not be occasion for delay. In the event 
of such absence, the hearing will pro- 
ceed and the case will be regarded as 
submitted by the absent party as pro- 
vided in Rule 11. 

20. Hearings: Nature; Examination 
of Witnesses 

(a) Nature of Hearings. Hearings 
shall be as informal as may be reason- 
able and appropriate under the cir- 
cumstances. Appellant and respondent 
may offer such relevant evidence as 
ihey deem appropriate and as would 
be admissible under the Federal Rules 
of Evidence, subject, however, to the 
sound discretion of the presiding Ad- 
ministrative Judge or examiner in su- 
pervising the extent and manner of 
presentation of such evidence. In gen- 
eral, admissibility will depend on rel- 
evancy and materiality. Evidence 
which may not be admissible under 
the Federal Rules of Evidence may be 
admitted in the discretion of the pre- 
siding Administrative Judge or exam- 
iner. The weight to be attached to evi- 
dence presented in any particular 
form will be within the dscretion of 



the Board. Stipulations of fact agreed 
upon by the parties may be regarded 
and used as evidence at the hearing. 
The parties may stipulate the testimo- 
ny that would be given by a witness i.*^ 
the witness were present. The Board 
may require evidence in addition to 
that offered by the parties. 

(b) Examination of Witnesses. Wit- 
nesses before the Board will be exam- 
ined orally under oath or affirmation, 
unless the presiding Administrative 
Judge or examiner shall otherwise 
order. If the testimony of a witness is 
not given under oath, the Board may 
advise the witness that his statements 
may be subject to the provisions of 
Title 18, United States Code, sections 
287 and 1001, and any other provision 
of law imposing penalties for knowing- 
ly making false representations in con- 
nection with claims against the United 
States or in any matter within the ju- 
risdiction of any department or agency 
thereof. 

21. Subpoenas 

(a) General 

Upon written request of either party 
filed with the (clerk, recorder), or on 
his own motion, the Administrative 
Judge to whom a case is assigned or 
who is otherwise designated by the 
Chairman may issue a subpoena re- 
quiring: 

(i) Testimony at a deposition— the 
deposing of a witness in the city or 
country where he resides or is em- 
ployed or transacts his business in 
person, or at another location conve- 
nient for him that is specifically deter- 
mined by the Board; 

(ii) Testimony at a hearing— the at- 
tendance of a witness for the purpose 
of taking testimony at a hearing; and 

(iii) Production of books, papers, 
documents, or tangible things— in addi- 
tion to (i) or (ii). the production by the 
witness at the deposition or hearing of 
relevant books, papers, documents, or 
tangible things designated in the sub- 
poena. 

(b) Voluntary Cooperation 

Each party is expected (i) to cooper- 
ate and make available witnesses and 
books, papers, documents, or tangible 
things under iLs control as requested 



D 



366 



Contract Disputes Act Appendix 



B 



by the other party, without issuance 
of a subpoena, and (ii) to secure volun- 
tary attendance of desired third-party 
witness and production of desired 
third-party books, papers, documents, 
or tangible things whenever possible. 

(c) Requests for Subpoenas 

(DA request for a subpoena shall 
normally be filed at least: 

(i) 15 days before a scheduled deposi- 
tion where the attendance of a witness 
at a deposition is sought; 

(ii) 30 days before a scheduled hear- 
ing where the attendance of a witness 
at a hearing is sought. 

In its discretion the Board may 
honor requests for subpoenas not 
made within these time limitations. 

(2) A request for a subpoena shall 
state the reasonable scope and general 
relevance to the case of the testimony 
and of any books, papers, documents. 
or tangible things sought. 

(d) Requests to Quash or Modify 
Upon written request by the person 

subpoenaed or by a party, made within 
10 days after service but in any event 
not later than the time specified in 
the subpoena for attendance, the 
Board may (i) quash or modify the 
subpoena if it is unreasonable and op- 
pressive or for other good cause 
shown, or (ii) require the person in 
whose behalf the subpoena was issued 
to advance the reasonable cost of pro- 
ducing subpoenaed books, papers, doc- 
uments, or tangible things. Where cir- 
cumstances require, the Board may act 
upon such a request at any time after 
a copy has been served upon the op- 
posing party. 

(e) Form: Issuance 

(1) Every subpoena shall state the 
name of the Board and the title of the 
appeal, and shall command each 
person to whom it is directed to attend 
and give testimony, and if appropriate, 
to produce specified books, papers, 
documents, or tangible things, at a 
time and place therein specified. In is- 
suing a subpoena to a requesting 
party, the Administrative Judge shall 
sign the subpoena and may. in his dis- 
cretion, enter the name of the witness 



and otherwise leave it blank. The 
party to whom the subpoena is issued 
shall complete the subpoena before 
service. 

(2) Where the witness is located in a 
foreign country, a letter rogatory or 
subpoena may be issued and served 
under the circumstances and in the 
manner provided in 28 U.S.C. 1781- 
1784. 

(f) Service 

(1) The Administrative Judge may 
arrange for service of the subpoenas 
or may release them to the parties for 
service. 

(2) A subpoena requiring the attend- 
ance of a witness at a deposition or 
hearing may be served at any place. A 
subpoena may be served by a United 
States marshal or his deputy, or by 
any other person who is not a party 
and not less than 18 years of age. Serv- 
ice of a subpoena upon a person 
named therein shall be made by per- 
sonally delivering a copy to him and 
tendering to him the fees for one day's 
attendance and the mileage provided 
by 28 U.S.C. 1821 or other applicable 
law. 

(3) The party at whose instance a 
subpoena is is.sued shall be responsible 
for the payment of fees and mileage of 
the witness and of the officer who 
serves the subpoena. The failure to 
make payment of such charges on 
demand may be deemed by the Board 
as a sufficient ground for striking the 
testimony of the witness and the 
books, papers, documents, or tangible 
things he has produced. 

(g) Contumacy or Refusal to Obey a 
Subpoena 

In case of contumacy or refusal to 
obey a subpoena by a person who re- 
sides, is found, or transacts business 
within the jurisdiction of a United 
States District Court, the Board will 
apply to the court through the Attor- 
ney General of the United States for 
an order requiring the person to 
appear before the Board or a member 
thereof to give testimony or produce 
evidence or both. Any failure of any 
such person to obey the order of the 



OFPP Proposed Board Rules 



367 



5224 



court may be punished by the court as 
a contempt thereof. 

22. Copies of Papers 

When books, records, papers, or doc- 
uments have been received in evi- 
dence, a true copy thereof or of such 
part thereof as may be material or rel- 
evant may be substituted therefor, 
during the hearing or at the conclu- 
sion thereof. 

23. Posthearing Briefs 
Posthearing Briefs may be submit- 
ted upon such terms as may be agreed 

_ upon by the parties and the presiding 
Administrative Judge or examiner at 
the conclusion of the hearing. Ordi- 
narily, they will be simultaneous 
briefs, exchanged within 30 days after 
receipt of transcript. 

24. Transcript of Proceedings 
Testimony and argument at hear- 
ings shall be reported verbatim, unless 
the Board otherwise orders. Tran- 
scripts or copies of the proceedings 
shall be supplied to the parties at such 
rates as may be fixed by ( ). 

25. Withdrawal of ExhibiU 

After a decision has become final 
the Board may, upon request and 
after notice to the other party, in its 
discretion permit the withdrawal of 
original exhibits, or any part thereof, 
by the party entitled thereto. The sub- 
stitution of true copies of exhibits or 
any part thereof may be required by 
the Board in its discretion as a condi- 
tion of granting permission for such 
withdrawal. 

Representation 
28. The Appellant 

An individual appellant may appear 
before the Board in person, a corpora- 
tion by one of its officers: and a part- 
nership or joint venture by one of its 
members: or- any of these by an attor- 
ney at law duly licensed in any state, 
commonwealth, territory, or in the 
District of Columbia. An attorney rep- 
resenting an appellant shall file a writ- 
ten notice of appearance with the 
Board. 

27. The Government 

Government counsel may. in accord- 



ance with their authority, represent 
the Interest of the Government before 
the Board. They shall file notices of 
appearance with the Board, and notice 
thereof will be given appellant or his 
attorney in the form specified by the 
Board from time to time. Whenever 
appellant and the Government coun- 
sel are in agreement as to disposition 
of the controversy, the Board may sus- 
pend further processing of the appeal. 
However, if the Board is advised there- 
after by either party that the contro- 
versy has not been disposed of by 
agreement, the case shall be restored 
to the Board's calendar without loss of 
position. 

Decisions 

28. Decisions 

Decisions of the Board will be made 
in writing and authenticated copies of 
the decision will be forwarded simulu- 
neously to both parties. The rules of 
the Board and all final orders and de- 
cisions shall be open for public inspec- 
tion at the offices of the Board in 
Washington. D.C. Decisions of the 
Board will be made solely upon the 
record. as.described in Rule 13. 

Motion for Reconsideration 
29. Motion for Reconsideration 
A motion for reconsideration may be 
filed by either party. It shall set forth 
specifically the grounds relied upon to 
susUin the motion. The motion shall 
be filed within 30 days from the date 
of the receipt of a copy of the decision 
of the Board by the party filing the 
motion. 

Dismissals 
30. Dismissal Without Prejudice 
In cerUin cases, appeals docketed 
before the Board are required to be 
placed in a suspense status and the 
Board is unable to proceed with dispo- 
sition thereof for reasons not within 
the control of the Board. Where the 
suspension has continued, or may con- 
tinue, for an inordinate length of time 
the Board may. in its discretion, dis- 
miss such appeals from its docket 



B 



368 



Contract Disputes Act Appendix 



B 



without prejudice to their restoration 
when the cause of suspension has been 
removed. Unless either party or the 
Board acts within three years to rein- 
state any appeal dismissed without 
prejudice, the dismissal shall be 
deemed with prejudice. 

31. Dismissal for Failure to Pros- 
ecute 

Whenever a record discloses the fail- 
ure of either party to file documents 
required by these rules, respond to no- 
tices or correspondence from the 
Board, comply with orders of the 
Board, or otherwise indicates an inten- 
tion not to continue the prosecution or 
defense of an appeal, the Board may 
issue an order requiring the offending 
party to show cause why the appeal 
should not be either dismissed or 
granted, as appropriate. If no cause is 
shown, the Board may take appropri- 
ate action. 

ExParte Communications 

32. No member of the Board or of 
the Board's staff shall entertain, nor 
shall any person directly or Indirectly 
involved in an appeal submit to the 
Board or the Board's staff, off the 
record, any evidence, explanation, 
analysis, or advice, whether written or 
oraU regarding any matter at Issue in 
an appeal. This provision does not 
apply to consultation among Board 
members nor to exoarte communicA- 
tlons concerning the Board's adminis- 
trative functions or procedures. 

Sanctions 

33. If any party falls or refuses to 
obey an order issued by the Board, the 
Board may then make such order as it 
considers necessary to the just and ex- 
peditious conduct of the appeal. 

Effective Date 

34. These rules shall take effect on 
March 1, 1979. 

Proposed Regulatory Coverage and 
Contract Clause 

I. regulatory coverage— disputes 
procedure 



Section 1-314 of the Defense Acqui- 
sition Regulation and Section 1-1.318 
of the Federal Procurement Regula- 
tions are amended to provide as fol- 
lows: 

1. Contractor claims against the 
Government. 

(a) As used In connection with this 
disputes procedure— 

(1) . "Misrepresentation of fact" 
means a false statement of substimtlve 
fact, or any conduct which leads to a 
belief of a substantive fact material to 
proper understanding of the matter in 
hand, made with intent to deceive or 
mislead. 

(2) "Claim" means a written demand 
for a decision of the contracting offi- 
cer pursuant to the Contract Disputes 
Act of 1978. 41 U.S.C. 601. et seq. 

2. (a) Only a written submission 
shall constitute a claim by the con- 
tractor. The claim shall Include the 
amount or other relief sought and ap- 
propriate supporting data. In the case 
of claims or amendments to claims ex- 
ceeding $50,000. or with any amend- 
ment causing the total claim to exceed 
$50,000. the Contractor shall certify, 
when the Contracting Officer and the 
Contractor agree that the claim is 
ready for a decision under (f ) below, as 
follows: 

I certify that the claim is made In good 
faith, that the supporting data are accurate 
and complete to the best of my knowledge 
and belief: and that the amount requested 
accurately reflects the contract adjustment 
for which the contractor believes the Gov- 
ernment is liable. 

Contractor's Name 

Title 

(b) The Government shall pay the 
contractor Interest— 

(1) On the amount found due on 
claims; 

(2) At the rate fixed by the Secre- 
tary of the Treasury, under the Re- 
negotiation Act. Public Law 92-41, in 
effect on the date the Contracting Of- 
ficer receives a claim; 

(3) Prom the date pajrment is due or 
the Contracting Officer receives the 



OFPP Proposed Board Rules 



369 



5225 



claim, whichever is later, until the 
Government makes payment. 

(c) If a contractor cannot support 
any of its claim as a result of fraud or 
misrepresentation of fact, then, in ad- 
dition to whatever remedies or penal- 
ties may otherwise be provided by law, 
the Contractor shall— 

(1) Pay the Government an amount 
equal to the unsupported part of the 
claim; 

(2) Pay all Government costs attrib- 
utable to reviewing that part of the 
claim: 

(d) Agencies shall . report all in- 
stances of suspected fraudulent claims 
using the procedures In ( ). 

(e) The Contracting Officer shall 
give the Contractor a decision In ac- 
cordance with (f ) below on any unsat- 
isfied Government demand against the 
Contractor relating to the contractor. 

(f ) Contracting Officer's decision. 
(1) When a claim cannot be satisfied 

or settled by agreement and a decision 
on the claim is necessary the Contract- 
ing Officer shall; 

(i) Review the facts pertinent to the 
claim; 

(ii) Secure assistance from legal and 
other advisors; 

(iii) Coordinate with the contract ad- 
ministration office or contracting 
office, when appropriate. 

(iv) Furnish a copy of the decision to 
the contractor, by certified mail, 
return receipt requested, or any other 
method that provides evidence of re- 
ceipt; and 

(V) Include in the final decision: 

(A) A paragraph substantially as fol- 
lows: This is the final decision of the 
Contracting Officer. This decision may 
be appealed to the cognizant Board of 
Contract Appeals. If you decide to 
make such an appeal you must mail or 
otherwise furnish written notice there- 
of to the Contracting Officer, and to 
the Board under its Rules, within 
ninety days from the date you receive 
this decision. The notice shall Indicate 
that an appeal Is Intended, should ref- 
erence this decision, and identify the 
contract by number. In lieu of appeal- 



ing to the cognizant Board of Contract 
Appeals you may bring an action di- 
rectly in the U.S. Court of Claims, 
within twelve months of the date you 
receive this decision. 

(B) A description of the claim or dis- 
pute; 

(C) A reference to pertinent contract 
provisions; 

(D) A statement of the factual areas 
of agreement or disagreement. 

(E) A statement of the contracting 
officer's decision, with supporting ra- 
tionale. 

(P) Notification that the small 
claims procedure of the cognizant 
Board shall be applicable at the sole 
election of the contractor in the event 
the amount in dispute as a result of 
the final decision is $10,000 or less. 

(G) Notification that the accelerated 
procedure of the cognizant Board 
shall be applicable at the sole election 
of the contractor in the event the 
amount in dispute as a result of the 
final decision is $50,000 or less. 

(vi) Issue the decision within the fol- 
lowing statutory time limitations: 

(A) For claims not exceeding 
$50,000: Sixty days after receipt of the 
claim. 

(B) For submitted claims exceeding 
$50,000: Sixty days after receipt of 
claim; provided, however, if a decision 
is not issued within sixty days the con- 
tracting officer shall notify the con- 
tractor of the time within which he 
will make the decision. The reason- 
ableness of this time period will 
depend on the size and complexity of 
the claim and the adequacy of the con- 
tractor's supporting daU and any 
other relevant factors. 

(g) The amount determined payable 
pursuant to the decision, less any por- 
tion already paid, normally should be 
paid without awaiting contractor 
action concerning appeal. Such pay- 
ment shall be without prejudice to the 
rights of either party. 

(h) These procedures do not affect 
the rights or authority of the Govern- 
ment regarding any demand or dispute 
for penalties or forfeitures prescribed 
by statute or regulation that anv 



370 



Contract Disputes Act Appendix 



B 



agency is specifically authorized to ad- 
minister, settle, or determine, nor do 
they apply to requests for relief under 
Pub. L. 85-804. 

(i) Informal Administrative Confer- 
ence. 

(1) At any time prior to an appeal to 
a Board of Contract Appeals or suit in 
court, an agency shall afford a con- 
tractor at least one opportunity for an 
informal conference with the agency 
for the purpose of considering the pos- 
sibility of disposing of the claim by 
mutual agreement. 

(2) This conference shall be held 
within thirty days of the request for 
such conference, or later as mutually 
agreeable between the contractor and 
the agency head or his designee. The 
conference shall be conducted by a 
designee or designees of the agency 
head selected from a level above the 
office to which the contracting officer 
is attached, who, if feasible, shall not 
have participated substantially in any 
prior decision on the claim. 

(3) The conferees may consider any 
material, written or oral, relevant to 
the claim, but testimony or evidence 
shall not be taken. Any documentary 
materials or oral statements submitted 
during the conference shall not be evi- 
dence in any subsequent appeal or suit 
in court on the claims unless offered 
anew and admissible under applicable 
rules of evidence. Any offers of settle- 
ment or compromise during or result- 
ing from the conference shall be with- 
out prejudice and shall not be evi- 
dence or referred to in any subsequent 
appeal or suit in court on the claim. 

(4) If the agency conferees deter- 
mine that the claim or dispute should 
be settled, compromised, paid, or oth- 
erwise adjusted by mutual agreement, 
they shaU make a written report to 
the agency head within thirty days of 
the conference detailing the basis for 
their determination and recommend- 
ing exercise of his settlement authori- 
ty. The agency head shall act pursu- 
ant to his settlement authority within 



sixty days, or later if mutually agree- 
able between the contractor and the 
agency head, after receiving the 
agency conferees' report and recom- 
mendations. 

(5) A request for a conference with 
the agency does not affect the time 
for coraimencement of a contractor's 
appeal to the agency board of contract 
appeals or filing a suit in court. How- 
ever, an agency board shall stay fur- 
ther proceedings whenever a timely re- 
quested conference has not been con- 
ducted at the time the contractor files 
an appeal with the agency board until 
the conference is held or waived by 
the contractor. 

II. DISPUTES CLAUSE 

1. Section 7-103.12 of the Defense 
Acquisition Regulation and Section 1— 
7.102-12 of the Federal Procurement 
Regulation are amended to provide as 
follows: 

The Contracting Officer shall insert the 
following clause in all contracts unless 
exempted by the head of the agency under 
41 UJS.C. 603(c). 

Disputes Clause 

(a) If this contract is subject to the Con- 
tract Disputes Act of 1978. (41 U.S.C. 601. 
et. seq.) any dispute or claim relating to this 
contract shall be resolved in accordance 
with the provisions of that Act. 

(b) On request, the contracting officer 
shall promptly furnish the contractor a 
copy of the regulations and procedures ap- 
plicable to the resolution of claims and dis- 
putes relating to this contract. 

(c) The Contractor shall proceed diligent- 
ly with performance of this contract, pend- 
ing final resolution of any request for relief, 
claim, appeal or action related to the con- 
tract, and comply with any decision of the 
Contracting Officer rendered pursuant to 
the Contract Disputes Act of 1978. 

(FR Doc. 79-2688 Filed 1-24-79: 8:45 ami 



OFPP Interim Board Rules 371 



INTERIM FINAL RULES OF PROCEDURE FOR BOARDS OF 
CONTRACT APPEALS AND RELATED REGULATIONS 

Office of Federal Procurement Policy 

44 Fed. Reg. 12519 (March 7, 1979) 



[3310-Ol-M] 

OFFICE OF MANAGEMENT AND 
BUDGET 

Offic* of Ftd T ol Pro<wr«m«ftt Policy 

UNIFORM RULES OF PROCEDURE FOR BOARDS 
OF CONTRAa APPEALS AND RELATED REG- 
ULATIONS 

lnt«fiM Finol Rm1«« 

February 26. 1979. 
AGENCY: Office of Federal Procure- 
ment Policy (OFPP). Office of Man- 
agement and Budget. 

ACTION: Notice of Interim Final Uni- 
form Rules of Procedure for Boards of 



B 



372 



Contract Disputes Act Appendix 



12520 



Contract Appeals and related regula- 
tions. 

SUMMARY: This document sets out 
the text of interim rules which boards 
of contract appeals must adopt as well 
as rules which the Department of De- 
fense, the General Services Adminis- 
tration, and the National Aeronautics 
and Space Administration must incor- 
porate in their procurement regula- 
tions. 

On November 1. 1978. the President 
signed into law Pub. L. 95-563. the 
"Contract Disputes Act of 1978." That 
Act. among other things requires 
changes to the Rules of Procedure cur- 
rently in use by the Boards of Con- 
tract Appeals of the procuring agen- 
cies, as well as certain other changes 
In contract clauses and procurement 
regulations by March 1. 1979. Pro- 
posed Rules of Procedure and related 
regulations were published for com- 
ment in the January 25. 1979. Federal 
Register. The Interim final Rules and 
regulations set forth below incorpo- 
rate the changes required by I*ub. L. 
95-563. and reflect many of the com- 
ments received on the proposed Rules 
and regulations. Some of the changes 
to the Rules and regulations made as a 
result of comments received are sig- 
nificant. These Rules and regulations 
are therefore issued as implementa- 
tion of Pub. L. 95-563. effective on 
March 1. 1979. on an interim basis, 
and will automatically become final on 
June 1. 1979 unless changed before 
that time. This will enable the Office 
of Federal Procurement Policy to 
evaluate additional comments on the 
Interim Rules and regulations. The 
Rules of Procedure are to be adopted 
uniformly by all Boards of Contract 
Appeals. 

DATE: These Interim Rules and regu- 
lations are effective on March 1. 1979. 

FOR FURTHER INFORMATION 
CONTACT: 

Mr. Owen Birnbaum. Deputy Asso- 
ciate Administrator for Acquisition 
Law. (202) 395-3455. 

Lester A. Fettig, 
Administrator. 



Rules of Procedure for Boards of 
Contract Appeals 

preface to rules 

I. Jurisdiction for considering appeals. 

The Board of Contract Appeals (re- 
ferred to herein as the "Board") shall con- 
sider and determine appeals from decisions 
of contracting officers pursuant to the Con- 
tract Disputes Act of 1979 (Pub. L. 95-563. 
41 U.S.C. 601-613) relating to contracts 

made by (1) the (executive agency) or 

(II) any other executive agency when such 
agency or the Administrator for Federal 
Procurement Policy has designated the 
Board to decide the appeal. 

II. Organization and location of the 
Board. 

(a) The Board's address Is ( ). tele- 
phone ( ). 

(b) The Board consists of a Chair. Vice 
Chair, and other members, all of whom are 
attorneys at law duly licensed by any state, 
commonwealth, territory, or the District of 
Columbia. In general, the appeals are as- 
signed to a panel of as least ( ) members 

who decide the case by a majority vote. 
Board Members are designated Administra- 
tive Judges. 

III. rtme. Computation, and Extensions. 

(a) Where possible, procedural actions 
should be taken In less time than the maxi- 
mum time allowed. Where appropriate and 
Justified, however, extension of time will be 
granted. All requests for extensions of time 
shall be In writing. 

(b) In computing any period of time, the 
day of the event from which the designated 
period of time begins to run shall not be in- 
cluded, but the last day of the period shall 
be Included unless It is a Saturday. Sunday. 
or a legal holiday, in which event the period 
shall run to the end of the next business 
day. 

IV. ExParte Communications. 

No member of the Board or of the Board's 
staff shall entertain, nor shall any person 
directly or indirectly Involved in an appeal, 
submit to the Board or the Board's staff, off 
the record, any evidence, explanation, anal- 
ysis, or advice, whether written or oral, re- 
garding any matter at issue In an appeal. 
This provision does not apply to consulta- 
tion among Board members nor to exparte 
communications concerning the Boards ad- 
mininstrative functions or procedures. 

RULES 

Preliminary Procedures 
1. Appeals. How Taken, (a) Notice of an 



OFPP Interim Board Rules 



373 



appeal shall be In writing and mailed or oth- 
erwise furnished to the Board within 90 
days from the date of receipt of a contract- 
ing officers decision. A copy thereof shall 
be furnished to the contracting officer from 
whose decision the appeal is taken. 

(b) Where the contractor has submitted a 
claim of $50,000 or loss to the contracting 
officer and has requested a written decision 
within 60 days from receipt of the request, 
and the contracting officer has not done so. 
the contractor may file a notice of appeal as 
provided in subparagraph (a) above, citing 
the failure of the contracting officer to 
Issue a decision. 

(c) Where the contractor has submitted a 
claim In excess of $50,000 to the contracting 
officer and the contracting officer has failed 
to Issue a decision within a reasonable time, 
the contractor may file a notice of appeal as 
provided In subparagraph (a) above, citing 
the failure to Issue a decision. 

(d) Upon docketing of appeals filed pursu- 
ant to (b) or (c) hereof, the Board may. at 
Its option, stay further proceedings pending 
issuance of a final decision by the contract- 
ing officer within such period of time as is 
determined by the Board. 

2. Notice of Appeal, Contents of. A notice 
of appeal should Indicate that an appeal is 
being Uken and should Identify the con- 
tract (by number), the department and 
agency or bureau Involved in the dispute, 
the decision from which the appeal Is taken, 
and the amount In dispute. If known. The 
notice ol appeal should be signed by the ap- 
pellant (the contractor making the appeal), 
or by the appellant's duly authorized repre- 
sentative or attorney. The complaint re- 
ferred to In Rule 6 may be "filed with the 
notice of appeal, or the appellant may desig- 
nate the notice of appeal as a complaint. If 
It otherwise fulfills the requirements of a 
complaint. 

3. Docketing of Appeals. When a notice of 
appeal in any form has been received by the 
Board, it shall be docketed promptly. Notice 
In writing shall be given to the appellant 
with a copy of these rules, and to the con- 
tracting officer. 

4. Preparation, Content, Organization, 
Forwarding, and Status of Appeal File, (a) 
Within 30 days of receipt of an appeal, or 
notice that an appeal has been filed, the 
contracting officer shall assemble and trans- 
mit to the Board: (1) the decision from 
which the appeal Is taken; and (2) the con- 
tract Including specifications and pertinent 
amendments, plans and drawings. 

(b) These documents are considered, with- 



out further action by the parties, as part of 
the record upon which the Board will 
render Its decision. However, a party may 
object to consideration of a particular docu- 
ment or all documents In advance of hear- 
ing or of settling the record In the event 
there Is no hearing on the appeal. If such 
objection is made, the Board will rule upon 
admissibility Into the record as evidence in 
accordance with Rules 13 and 20 hereof. 

5. Dismissal for Lack of Jurisdiction. Any 
motion addressed to the JurLsdlction of the 
Board shall be promptly filed. Hearing on 
the motion shall be afforded on application 
of either party. However, the Board may 
defer Its decision on the motion pending 
hearing on both the merits and the motion. 
The Board shall have the rl^ht at any time 
and on its own initiative to rai.se the is^uc of 
iLs Jurisdiction to proceed with a particular 
case, and .shall do so by an appropriate 
order, affording the parties an opportunity 
to be heard thereon. 

6. Pleadings, (a) Appellant- Wit hin 30 
days after receipt of notice of docketing of 
the appeal, the appellant shall file with the 
Board an oriKinal and two copie.s of a com- 
plaint setting forth simple, conci.se and 
direct statements of each of its claim.s. Ap- 
pellant shall also set forth the b.Lsi.s. with 
appropriate reference to contract provi- 
sions, of each claim and the dollar amount 
claimed, to the extent known. This pleading 
shall fulfill the generally recognized re- 
quirements of a complaint, although no par- 
ticular form Is required. Upon receipt of the 
complaint, the Board shall serve a copy of It 
upon the Government. Should the com- 
plaint not be received wlthlng 30 days, ap- 
pellanfs claim and appeal may. If In the 
opinion of the Board the Issues before the 
Board are sufficiently defined, be deemed to 
set forth lU complaint and the Government 
shall be so notified. 

(b) Government— Within 30 days from re- 
ceipt of the complaint, or the aforesaid 
notice from the Board, the Government 
shall prepare and file with the Board an 
original and two copies of an answer there- 
to. The answer shall set forth simple, con- 
cise and direct statements of Government's 
defenses to each claim asserted by appel- 
lant, including any affirmative defenses 
available. Upon receipt of the answer, the 
Board shall serve a copy upon appellant. 
Should the answer not be received within 20 
days, the Board may. in Its discretion, enter 
a general denial- on hehalf of the Govern- 
ment, and the appellant shall be so notified. 

7. Amendments of Pleadings or Record. 
The Board upon Its own initiative or upon 



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Contract Disputes Act Appendix 



12521 



i 



application by a party may order a party to 
make a more definite statement of the com- 
plaint or answer, or to reply to an answer. 
The Board may. In Its discretion, and within 
the proper scope of the appeal, permit 
either party to amend Its pleading upon 
conditions fair to both parties. When Lssues 
within the proper scope of the appeal, but 
not raised by the pleadings, are tried by ex- 
press or Implied consent of the parties, or 
by permission of the Board, they shall be 
treated in all respects as If they had been 
raised therein. In such Instances, motions to 
amend the pleadings to conform to the 
proof may be entered, but are not required. 
If evidence Is objected to at a hearing on 
the ground that It Is not within the Issues 
raised by the pleadings. It may be admitted 
within the proper scope of the appeal, pro- 
vided, however, that the objecting party 
may be granted a continuance if necessary 
to enable It to meet such evidence. 

8. Hearing Election. After filing of the 
Goverrunent's answer or notice from the 
Board that It has entered a general denial 
on behalf of the Government, each party 
shall advise whether it desires a hearing as 
prescribed In Rules 17 through 25. or 
whether It electa to submit its case on the 
record without a hearing, as prescribed In 
Rule II. 

9. Prehearing Briefi. Based on an exami- 
nation of the pleadings, and its determina- 
tion of whether the arguments and authori- 
ties addressed to the Issues are adequately 
set forth therein, the Board may. in ite dis- 
cretion, require the parties to submit pre- 
hearing briefs in amy case In which a hear- 
ing has been elected pursuant to Rule 8. If 
the Board does not require prehearing 
briefs either party may, in Its discretion and 
upon appropriate and sufficient notice to 
the other party, furnish a prehearing brief 
to the Board. In any case where a prehear- 
ing brief is submitted. It shall be furnished 
so as to be received by the Board at least 15 
days prior to the date set for hearing, and a 
copy shall simultaneously be furnished to 
the other party as previously arranged. 

10. Prehearing or Presubmission Confer- 
ence. (a) Whether the case Is to be submit- 
ted pursuant to Rule 11, or heard pursuant 
to Rules 17 through 25. the Board may 
upon Its own Initiative, or upon the applica- 
tion of either party, arrange a telephone 
conference or call upon the parties to 
appear before an Administrative Judge or 
examiner of the Board for a conference to 
consider 

(1) simplification, clarification, or severing 
of the Issues: 

(2) the possibility of obtaining stipula- 



tions, admissions, agreements and rulings on 
admissibility of documents, understandings 
on matters already of record, or similar 
agreements that will avoid unnecessary 
proof; 

(3) agreements and rulings to facilitate 
discovery; 

(4) limitation of the number of expert wit- 
nesses, or avoidance of similar cumulative 
evidence; 

(5) the possibility of agreement disposing 
of any or all of the Issues In dispute: and 

(6) such other matters as may aid In the 
disposition of the appeal. 

(b) The Administrative Judge or examiner 
of the Board shall make such mllngs and 
orders as may be appropriate to achieve set- 
tlement by agreement of the parties or to 
aid In the disp